Product Life Cycle Pricing

NEW PRODUCTS AND THE PRODUCT LIFE CYCLE

 NEW PRODUCTS AND THE PRODUCT LIFE CYCLE

• New products represent a primary source of organic volume and profit growth, and avoiding pricing mistakes
can have both short and long-term impact on financial performance.
• If priced too high at launch, a new product will fail to achieve the volume necessary to maintain short-term
profitability. Conversely, if priced too low, a new product may achieve its volume targets while failing to deliver
sufficient profits.
• Customers are less knowledgeable about new products and, hence, must educate themselves about new
features, benefits, and, ultimately, the value that the product might deliver. This lack of knowledge represents
an opportunity and a challenge for marketers.
 MARKET DEVELOPMENT STAGE
• Buyers are price insensitive because they lack knowledge of the product's benefits.
• Both production and promotional costs are high.

• Competitors are either nonexistent or few and not a threat since the potential gains from market development

exceed those from competitive rivalry.

• Pricing strategy signals the product's value to potential buyers, but buyer education remains the key to sales
growth.
 MARKET GROWTH STAGE
• Buyers are increasingly informed about product attributes either from personal experience or from
communication with innovators.
• Consequently, they are increasingly responsive to lower prices.
• Cost economies accompanying growth usually enable one to cut price while still maintaining profit margins.
• Although competition increases during this phase, high rates of market growth enable industry-wide
expansion, which generally limits price competition.
• Two prominent strategies to go for during Growth stage:
• Differentiated product strategy and
• Cost leadership strategy.
 Pricing in Differentiated Product Strategy
• With a differentiated product strategy, the firm focuses its marketing efforts on developing unique attributes

(or images) for its product.

• In growth, the firm must quickly establish a position in research, in production, and in buyer perception as the

dominant supplier of those attributes. Then, as competition becomes more intense, the uniqueness of its

product creates a value effect that attenuates buyers' price sensitivity, enabling the firm to price profitably

despite increasing numbers of competitors.

• Apple created such a reputation during the growth stage of computers with its user-friendly graphical interface,

proprietary operating system, and distinct product designs. As a result, Apple has always carried a premium

relative to Windows-based machines with similar capabilities.

 Pricing in a Cost Leadership Strategy
• Companies employing a cost leadership strategy concentrate on winning market shares by offering acceptable-
quality products at lower prices than their competition.
• This is accomplished by optimizing a few key components of their business.
• Maintaining the lowest price point often means accepting thin profit margins. Companies must scale their sales
volumes to where even a slim margin, repeated over a large number of sales, can maintain profitability.
• To protect as much profit as possible, these companies must stress efficiency in every part of their operation.
Cost leadership companies aggressively improve upon their processes, leverage long-term relations with
vendors to reduce costs over time, and quickly scale their operations, taking advantage of bulk and
wholesale pricing.
Examples of Cost Leadership Strategy Companies

• Walmart, IKEA, Imtiaz Super Store, Minoso

• PROS & CONS??
DOI:10.2991/978-94-6463-076-3_7
 MARKET MATURITY STAGE
• Most buyers are repeat purchasers who are familiar with the product. Increasing homogeneity enables them to
better compare competing brands.
• Price sensitivity reaches its maximum in this phase. Competition begins to put downward pressure on prices
since any firm can grow only by taking sales from its competitors. Contrary to Growth stage where losing to
competitor implies minor sales loss, giving space to competition in Maturity stage results in absolute sales
decline.
• Despite such competition, profitability depends on having achieved a defensible competitive position through
cost leadership or differentiation and on exploiting it effectively.
Common opportunities to maintain margins by increasing pricing effectiveness include improved demand
estimation, improved control and utilization of costs, expansion of the product line, and reevaluation of
distribution channels.
Number of smartphones sold to end users
worldwide from 2007 to 2022(in million units)
 MARKET DECLINE
• A downward trend in demand driven by customers adopting alternative solutions characterizes a market
in decline.
• Consequently, each firm scrambles for business at the expense of its competitors by cutting prices.
• Since the price cuts rarely stimulate enough additional market demand to reverse the decline, the
inevitable result is reduced profitability industry-wide
• The goal of strategy in decline is not to win anything; for some it is to exit with minimum losses.