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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: