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Chapter 7

Life Cycle Pricing

Adapting Strategy in a Changing

Environment

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Life Cycle Pricing

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Pricing the Innovation for Market

Introduction

An innovation is a product so new and unique

that buyers find the concept somewhat foreign.

It does not yet have a place in buyers lifestyle

Consequently, the market requires substantial

education

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TYPES OF NEW PRODUCTS

New product

Lines

20%

Costreductions

11%

Revision/improvements

to existing

products

26%

Addition to

existing product

line

26%

New to the

world products

10%

Repositioning

7%

Low High

High

Low

Newne

sstothecompa

ny

Newness to the market

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MARKET DEVELOPMENT

Low

Learning

Products

High

Learning

Products

Competitive

turbulenceSaturation

(maturity)Decline

STRATEGYOB

JECTIVE

Widespread

Brand

awareness

Establish

Market

position

Maintain

Strengthen

Market

niche

DefendPosition

Against

competition

MaximumProfit

milking

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MARKET DEVELOPMENT

Low

Learning

Products

High

Learning

Products

Competitive

turbulenceSaturation

(maturity)Decline

PRICEO

BJECTIVE High

Trade

discounts

Aggressive

Promotional

Pricing

strategy

Broaden

Promotional

Pricing

strategy

Defensive

Pricing

Strategy

Maintenance

Pricing

strategy

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Pricing the Innovation for

Market IntroductionAn important aspect of educational process is

Information diffusion

When the product benefits are obvious after just

one useWhen it is economical

The diffusion is important particularly for

expensive productsThe adoption of first 2 to 5 percent potential

customers

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Marketing Innovations Through Price-

Induced Sampling

When facing innovation most buyers are

relatively price insensitive

Innovators who try the product are not

random sample of buyers

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Marketing Innovation Through Direct

Sales

For innovations involve a largeexpenditure

When the innovation is more complicated

A sales through direct trained sales force

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Marketing Innovation Through

Distribution Channels

Convincing the distributor to promote

vigorously

Giving them high margins to actively

promote not to pass on the discount the

the customers

There is always a risk involved

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Pricing the New Product for Growth

Once a product concept gains a foothold

in the market, pricing problems begins to

change

Develop a market position as the new

entrants begin to take competitive position

Differentiate or low cost focus

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Pricing the New Product for

GrowthPrice Reductions in Growth:

The best price for growth stage is less than the price set

during the development stage

Many competitors, more alternatives

Familiarity with the products and its attributesBoth factors will increase price sensitivity

Even if products are patented, reducing price can speed

up the adoption process

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Pricing the New Product for Growth

Pricing the Differentiated Product

A differentiated strategy may be focused on a particular

buyer segment or directed industry wide

Here, the role of pricing is to collect rewards from the

attributes buyers find uniquely valuable

In industry wide differentiating strategy, the neutral or

penetration pricing is set to gain market share.

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Pricing the New Product for

Growth

Pricing the low cost product

If the market is not price sensitive, the neutral

pricing strategy is the most appropriate

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Pricing the Established Product in

Maturity Stage

A typical product spend most of its time in

maturity

The stage in which effective pricing is essential

for survivalThere are again three factors increase buyers

price sensitivity

1. Ability to compare competing products2. Imitation of most successful technology and

design and marketing strategies

3. Low risk involved with imitated products

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Pricing the Established Product

in Maturity Stage

Unbundling related products and services

Improved estimation of price sensitivity

Improved control and utilization of costs

Expansion of the product line

Reevaluation of the distribution channels

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Pricing a Product in Decline

Retrenchment strategy

Harvesting strategyConsolidating strategy

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Brand Stage Versus Product Life Cycle

Unlike stages in the life cycle, brand stages are

defined by changes in market; they are changing

in strategic objectives

Launch

Maintenance

Retirement

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New Product Development

Producing commodity products

Commodity products have to compete on price

Adding value to the products without putting

costs up too muchAdding cost and customer willingness to paypremium

Elements of Caution to advice not to produce

commodity productsZero R&D costs, Reduced Promotional costs,

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Innovation Strategies

Offensive strategy: being the first to market

Defensive:Me too products, some times with

product improvements

Imitative: straight copies, if patented than at thetime commodity.

Dependent: manufacturing when demanded

Traditional: a firm is not innovated at all, onlytraditional design and goods

Opportunist: when ever got the opportunity

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Diffusion of innovation

New products are not immediately adopted byconsumers

Innovators:like to be first to be own, Introduction PLC

Early adopters:open to new ideas, but like to wait:growth phase of PLC

Early majority:once the product is thoroughly tried andtested, Maturity phase of PLC

Late majority: Suspicious of new things. Wait until mostother have Late part of the maturity phase

Laggards:when it absolutely become necessary to doso, decline phase

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Assess ing Financ ial Risk

The three levels of financial success

attached to the launch:

1. Simple break even point:

2. Equilibrium break even point:

3. Capital acquisition point: