International Marketing in Germany – From a cultural perspective

Figure 2.2 Cost-based and Value-based Pricing 
Source:
Kotler, P. et al., 
Principles of Marketing,
(2005), p. 684 (modified) 
2.2.2
 
Product 
The second P in the marketing mix stands for the product. The definition of product is 
according to Kotler et al. as follows: 
“Anything that can be offered to a market for attention, acquisition, use or 
consumption that might satisfy a want or a need. It includes physical objects, 
services, persons, places, organizations and ideas”
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The product can be divided into three levels: core product, actual product and augmented 
product. Every level includes product mix tools (see below). 
21
Kotler, P. et al., 
Principles of Marketing,
(2005), p. 665 
22
Ibid, p. 670, 680 
23
Ibid, p. 683 
24
Ibid, p. 685 
25
Ibid, p. 539 
Cost-based pricing 
Product 
Cost 
Price 
Value 
Customers 
Customers 
Value 
Price 
Cost 
Product 
Value-based pricing 

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The 
core product
includes the functional benefit of a product and it is seen as a collection of 
physiological-technical qualities. The buyer reaches satisfaction through the functional 
product qualities. This limited perspective is frequently used within the area of real assets 
where services are not considered as a product.
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The 
actual product
additionally includes all attributes that deliver the core product benefits 
such as packaging, features, style, quality and brand name. Here there are also immaterial 
qualities considered.
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In comparison to the core product, it also focuses on functional 
customer satisfaction, but in difference, the product can be completely immaterial.
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Packaging is how the product is packed in a container or wrapper. It gives possibilities such as 
designing packaging concepts stating what the package should be or do for the product.
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Features are the extras that differentiate the product. Style is what the product looks like.
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Quality is how well the product performs, what it promises.
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Branding is the process of 
creating a link between the product and the brand. This has become so important that few 
products are unbranded today. Branding helps buyers in many ways, for example, it signals 
the quality. It also gives the supplier several advantages, for example makes it easier to 
process orders and track down problems, as well as ads value to consumers and society, for 
example signals information and help consumers to decide. The selection of a brand name is a 
difficult task and many factors need to be considered, it should represent the product and its 
benefits, fit into the target market and to the marketing strategies.
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The 
augmented product
is the broadest way of perspective. It includes additional consumer 
services and benefits built around the core and actual product such as installation service, 
after-sale service and repair, warranty service, delivery service, and credit and financing 
service.
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