I know this is a late reply, but somehow I could not find the answer to this problem elsewhere so I decided to post my experience in hopes it might help other frustrated people with this issue.
I have recently added an In-App purchase to my Free app and I faced the same problem during the testing phase and also once it was launched on App Store.
The answer is Patience. For some odd reason, after doing everything correctly, you need to wait for around a day before your product is recognized. So once you finish your Manage In-App product ID, you will only see it working the following day - so don't delete and recreate it again - just wait.
Furthermore, after submitting your app for approval with the first In-App product, even when your app is approved and available in the App Store, the In-App might not work at first and you will feel you did something wrong. Wait another day or so, and magically, it will start to work.