Chapter 5 - Product Life cycle and Pricing Strategies

Product life cycle

Different strategies are appropriate to different stages, each stage below;

• Development

• Introduction

• Growth

• Maturity

• Decline

Introduction

Price skimming

Growth

Market Penetration

Maturity

Consolidation strategy

Decline

Niche, Harvest or Divest

limitations of product life cycle

The length of each stage varies enormously and stages can be affected by decisions made.

Stages can be skipped.

Ways to Maximising Profit

• Reducing time to market

• Considering costs during design phase

• Extend the length of the cycle itself

How costs change as products go through their life cycle

Customer life cycle

Could effectively be increase by continually ensuring customer needs are met, as “new customers are 20x more expensive than old” as an old saying goes

Pricing strategies

• Premium Pricing

• Market skimming

• Penetration pricing

• Economy pricing

• Cost plus pricing

• Psychological pricing

• Product line pricing

• Optional product pricing

• Captive product pricing

• Product bundle pricing

• Promotional pricing

• Dual pricing

• Predatory pricing

• Loss leader

• Product differentiation

Premium Pricing

High price where the product is unique and a substantial competitive advantage exists

Market skimming

Often occurs when a product is new and very innovative, therefor appealing to the early adopter market who will buy it regardless of the price you charge.

Penetration pricing

A low price is set in order to gain market share. Once this is achieved the price increased

Economy pricing

Charging a low price for a no frills service

Cost Plus pricing

Price at the cost plus a percentage mark-up

Psychological pricing

Taking into account the way a customer thinks as they purchase.

Product line pricing

A range of products or services where the price reflects the benefits gained

Optional product pricing

Extras sold alongside the main product

Captive product pricing

having a product that requires resources to use - pricing depending on that i.e low product but high refillable item (Printer, Video games console)

Product bundle pricing

Combining a number of products in the same package

Promotional pricing

Pricing to promote a product

Dual pricing

Different pricing in different countries - or peak and off peak tickets

Predatory pricing

Pricing out competitors that you know can’t match as they would suffer a loss.

Loss leader

Sold at a loss - Used to establish a market share which can then be leveraged against other products

Product differentiation

Varieties of the same product so that it can be sold to a much larger market.