Introduction:
The pricing strategy for a product often evolves throughout its life cycle as it moves through different stages. The stages of life cycle of a product are introduction, growth, maturity, and decline. Each stage presents unique challenges and opportunities, and adjusting the pricing strategy accordingly can contribute to the product’s overall success. Here’s a breakdown of how product pricing may change over the life cycle: The innovation of a new product and its degeneration into a common product is known as life cycle of a product.
Stages of life cycle:
- Development stage
- Introduction stage
- Growth stage
- Maturity stage
- Decline stage
- Development stage: When the product enjoys distinctiveness, the producer enjoys monopoly power and it could be vice versa under certain situation. Proving detrimental to the producer in this stage he can withstand competition. As the product moves from one stage to another stage. There is improvement in the beginning and after reaching the maximum, product becomes significant. In order to save itself from the stage of insignificant, he also takes up innovation either he improves the old product or produce a new product.
- Introductory stage: In this stage the firm develops a new product through an advertisement innovation. The product is put into the market with all necessary propaganda. But the demand for a new product in the beginning is very slow. at this stage, the firm incurs higher promotional costs but the sales revenue is so low and eventually it cannot cover any costs fully. During this stage price will be generally high, assuming a skim price strategy for a high profit margin as the early adopter by the product and the firm seeks to the development costs quickly in some cases penetrating pricing strategy is used and introducing prices are set low to gain market share rapidly.
- Growth stage: In this stage there is rapid expansion of sale because of the effects of sale promotion undertaken in the introductory stage. In view of increased sales, the company earns goods profit after covering the entire costs. It is a period of rapid revenue growth prices are maintained at a high level if demand is high or lowered to capture additional customers.
- Maturity stage: When the product enters the maturity stage of growth the volume of sales goes on increasing but the rate of growth is rather slow. This is because all those who need the product, have already purchased it.
- Decline Stage: Sales decline as the product faces saturation or obsolescence, and the focus may shift to maximizing profits or phasing out the product.
- Rejuvenation or Discontinuation: If feasible, the product may undergo rejuvenation or be phased out altogether. Throughout the product life cycle, it’s essential for companies to monitor market conditions, customer preferences, and competitive pressures. Regularly reassessing and adapting the pricing strategy ensures that it aligns with the goals and challenges at each stage of the product’s life cycle. Prices may be lowered to clear inventory or maintained at a premium for niche markets. Cost-cutting measures might be employed. Limited promotions may focus on selling the remaining inventory. Alternatively, marketing efforts might shift towards promoting newer products.
also read: explain the marginal productivity theory of distribution.
