The Product Life Cycle Pricing Strategies
What could be the possible pricing strategies for each stage of the product life cycle?
Since the product life cycle is the marketing strategy that has all the ups and downs about the product’s life from the product’s birth to death. Based on the stages of the product lifecycle the product’s prices are also to be set.
As the product’s life starts it has to go through unexpected ups and downs. As such a firm or marketer needs to carefully analyze the life cycle of the product and based on findings he has to design the pricing strategies.
The product life cycle has five stages introduction, growth, maturity, saturation, and declining. The marketer can apply the following pricing strategies for each stage of the prodcut life cycle.
Pricing Strategy In Introduction Stage
Shortly, the beginning stage of the product life cycle is the introduction stage. The introduction stage means the intro of a new prodcut in the market for the very first time. In this stage, there is a small market for the newly introduced product, generally, no competitors, calls high marketing efforts, and very low sales, even sometimes no sales.
The primary goal of the introduction stage is to make potential parties informed about the new prodcut and attract as fast as possible. Generally, in this stage product price is high.
Moving to price strategy, the pricing strategy in the introduction stage is also called new product pricing or new market pricing. This is the strategy any marketer adopts while for the first time entering the market. At this stage, the product might be innovative, modified, or imitated.
Generally, the pricing of the product depends upon the nature of the prodcut. However, the popular pricing strategies for the introduction stage are mentioned here:
i. Price Skimming (Market Skimming): Price skimming pricing strategy assumes consumers will pay a high price for the new prodcut and sets a high price on the new product while entering the market. And, as time passes and competition increases in the market the initial high price is lower to meet the competition.
Price skimming strategy is most suitable in the following situations:
- If the firm is going to launch a new product for the market,
- If the new product has a distinct feature strongly desired by the customers,
- If the demand for the product is fairly inelastic,
- If the new product is protected by patent rights or other rights, or the market is more protective of the product.
ii. Price Penetration (Market Penetration): In the price penetration pricing strategy, in the initial period of entering in market, the new product’s price is set to low, with a view to penetrating the mass market immediately and thus obtain a large sales volume and larger market share.
The primary purpose of the price penetration strategy is to establish a market for the product, once the prodcut market is established, the price of the prodcut will be progressively increased. Maybe this strategy is suitable for the following situations,
- When a mass (large) market exists for the product,
- When the demand for the product is highly elastic,
- When economies of scale are possible i.e. substantial reduction per unit cost can be achieved through the larger-scale operation.
- When fierce competition already exists in the market for the product.
iii. Competitive Pricing: As its name suggests, a competitive pricing strategy one can use when there is competition in the market. Here the marketer sets his product’s price that is close to the price of competitors with aiming to steal some customers of competitors.
Pricing Strategy In Growth Stage
In the growth stage, product sales quickly increase and reach the top. The market becomes wider and more opportunities have been generated. As such were more opportunities, the other marketers or businesses have attracted towards the market.
The competition is going on increasing rapidly. As competition is increasing the market has diverse choices of product prices. One customer can easily shift from one product to another if one product’s price does not play well to meet his expectations.
Since the competition is increasing, pricing strategies for the growth stage of the product life cycle, the marketer needs to offer prodcut line pricing or options of product prices. And, in this stage, the product’s price needs to be set lower than set on the introduction stage.
Pricing Strategy In Maturity Stage
In the maturity stage, the profits and sales increase at decreasing rate. There is intense competition in the market since the product has entered the maturity stage. Intense competition is the reason for the decline of the sales volume of the product.
Since the competition is intense, competitors have come up with varieties of products and prices. Now, the customers have more choices of the products and various ranges of prices than it was on the growth stage. They now more easily shift from one to another product.
In the growth stage, the marketer should have a goal to achieve a competitive advantage. Now only price reduction is not enough to capture customers’ attention the marketer needs also to provide non-price benefits.
The price reduction should be the first task of the marketer along with he must offer a quality product, add different features, provide discounts, warranties, and after-sales service to meet customers’ expectations, and so on.
Pricing Strategy In Saturation Stage
The saturation stage indicates, in the market, there is almost no scope for growth. Now the competition is not only intense rather competition is cutthroat.
The product’s sales and profits go on decreasing. If the product is not improved or differentiated or the market is not differentiated there is no chance to increase sales.
Thus, at this stage, one thing the marketer must reduce his product’s price and must work for customers’ peak satisfaction. Along with he must try to improve the existing prodcut through advanced technology, make the unique product than competitors, choose market segments critically, and always remember without customers there are no sales so give first priority to customers while setting the product’s price.
Pricing Strategy In Declining Stage
The declining stage of the product life cycle means a total (relatively) decline in sales and profit. There are almost no opportunities in the market as such most of the competitors or marketers leave the market and go for searching new possibilities.
Here, almost there are no sales only the hardcore, loyal, and laggards customers buy products. Pricing strategies to the declining stage of product life cycle would be reduced price and again trying to acquire the attention of the customers and focusing on building prosperous market.
Though there seems no hope, since a large number of marketers left the market, the remaining few marketers can again recapture the market and start gaining profits as it was begun with the introduction stage.