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PRICING
Pricing and the product life
cycle
The four stages
launch
growth
maturity
decline
O Time
fig
The stages in a product’s life cycle
Product not
becoming
obsolete
Sales per period
Product
becoming
obsolete
Product
ProductBenefits
Benefitsthat
thatCustomers
CustomersWant
Want
at Any Cost.
at Any Cost.
Skimming
SkimmingPrice
Price-- Little
LittleChance
Chancethat
thatCompetitors
CompetitorsCan
Can
Charging
Chargingaa Enter
Enterthe
theMarket
MarketQuickly.
Quickly.
High,
High,Premium
Premium
Price
Price
Several
SeveralCustomer
CustomerSegments
Segmentswithwith
Different Levels of Price Sensitivity.
Different Levels of Price Sensitivity.
Penetration Pricing
Advantages:
Where short period elasticity is high
Where cost of production reduces sharply due to
increase in production
Where product is mass consumption item
• Results in faster penetration and product adoption
• Creates early adopter goodwill
• Creates tremendous cost reduction pressures from the
beginning
• Discourages the entry of competitors
Pricing….
High skimming price needs costly
promotional efforts, low
penetration price requires low
promotional expenditure
High skimming price generates
high cash flow early in the life
cycle
Setting
Setting Initial
Initial Product
Product
Prices
Prices
Market
Market Skimming
Skimming Market
Market Penetration
Penetration
> Setting a High Initial
Price for a New > Setting a Low Price
Product that is for a New Product in
lowered over time to Order to Attract a
Skim Maximum Large Number of
Revenues from the Buyers.
Target Market. > Results in a Larger
> Results in Fewer, Market Share.
More Profitable
Sales.
Pricing in Maturity Stage
Reaches this stage when its distinctiveness
experiences "competitive degeneration”
Consumers’ preferences are reducing
In total sales proportion of replacement demand is
more over fresh demand\technology becomes
equalized
Imitation has reduced product distinctiveness
Price war fatal at this stage
Reduce the price to the extent demand elasticity
permits
INTRODUCTION
Aggressive pricing:
Price cuts
Attract price sensitive
customers
STRATEGIES FOR GROWTH
STAGE
Product Benefits:
Emphasis on benefits
Create a niche market
STRATEGIES FOR GROWTH
STAGE
Improvement:
Improve product quality
Adding new features
Adding new models
Others changes like color,
flavor, size
STRATEGIES FOR GROWTH
STAGE
Products:
Abandon weaker products
Concentrate on profitable
products
STRATEGIES FOR MATURITY
STAGE
Promotion:
Increase advertising
Increase sales promotion
New packaging
Product re-launches
STRATEGIES FOR MATURITY
STAGE
Improvements:
Invest more in R & D
Improve Product
Improve Product line extensions
DECLINE
Signaled by a long-run drop in sales
Rate of decline is governed by how
rapidly consumer tastes change or how
rapidly substitute products are adopted.
Falling demand forces many out of
market
Few specialty firms left
DECLINE
STRATEGIES FOR DECLINE
STAGE
Tackling:
Reduce no. of products in a product
line
Reduce promotional budgets
Reduce prices
Reduce distribution channels
Reduce distributors
Withdrawal from weaker segments
Market Entry Strategies for New
Products