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a. 1. Product development begins when the company finds and develops a new-product idea. During product development, sales are zero and the company’s investment costs mount.

2. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.

3. Growth is a period of rapid market acceptance and increasing profits.

4. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.

5. Decline is the period when sales fall off and profits drop.

b. 1. Introduction: Product- offer a basic product

Price- Use cost-plus formula

Distribution- build selective distribution

Growth: Product- Offer product extensions, service, warranty

Price- Price to penetrate market

Distribution- increase distribution outlets

Maturity: Product- diversify brand and models

Price- Price to match or best competitors

Distribution- build more intensive distribution

Decline: Product- phase out weak items

Distribution- go selective: Phase out unprofitable outlets

a. Cost-based- adding a standard markup to the cost of the product

Ex. An appliance retailer might pay a manufacturer $20 for a

Toaster and mark it up to sell at $30, a 50% markup on cost.

Value-based- uses buyers’ perceptions of value rather than on the seller’s


Ex. People are looking for the right combination of quality

and good service at a fair price. This involves the

introduction of less expensive versions of established,

brand name products. Campbell introduced its Great

Starts Budget frozen-food line and Holiday Inn opened

several Holiday Express budget hotels.

Competition-based- setting prices based on the prices that competitors charge

for similar products.

Ex. A lesser-known gym such as City Gym in Downtown

Riverside may set prices to match market leaders,

Bally’s and 24 Hour Fitness price moves.

b. (The diagram is OK too and 1 sentence for it) The fundamental differences between cost-based and value-based pricing is

that cost-based pricing is product driven. The company designs what it considers to be a good product, totals the costs of making the product, and sets a price that covers costs plus a target profit. Marketing must then convince buyers that the product’s value at that price justifies its purchase. Value-based pricing is customer driven. The company sets it target price based on customer perceptions of the product value. The targeted value and price then drive decisions about product design and what costs can be incurred. As a result, pricing begins with analyzing consumer needs and value perceptions, and price is set to match consumers’ perceived value.

a. discounts- a straight reduction in price on purchases during a stated period of


Ex. “2/10, net 30” means that although payment is due within 30

days, the buyer can deduct 2 percent if the bill is paid within

10 days. Discount must be given to people meeting these


Allowances- money paid by manufacturers to retailers in return

for an agreement to take on additional tasks.

Ex. Trade-in-allowances are price reductions given for turning in

an old item when buying a new one. Trade-in-allowances

are most common in the automobile industry.

Segmented pricing- selling a product or service at two or more prices, where

the difference in prices is not based on differences in


Ex. Museums will charge a lower admission for students

and senior citizens. This is a form of customer

segment pricing.

b. High quality- the psychology of prices can be used to adjust prices by price

quality signals. This is to say that the price is used to say

something about a product.

Ex. BMW sells cars at a higher rate than Kia. The price of the

BMW goes to show the better quality and features of the

car. On the other hand, Kia’s cars are not as attractive and

do not prove to last as long as a BMW.

Price Leader- the psychology of prices can be used to adjust prices by

Reference prices. Reference prices are prices that buyers carry

In their minds and refer to when they look at a given product.

Ex. Ford can influence consumers’ reference prices by stating

higher manufacturer’s suggested prices, by indicating that

the product was originally priced much higher, or by

pointing to a competitor’s (Chevy) higher price.


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