What is Life Cycle Pricing?

Like any business itself, every product and service has its own life cycle. From the moment of development to the moment of discontinuation, goods exhibit a different demand level. Also, customers can be interested in a product more or less depending on its life cycle. This is why companies should price their goods accordingly. This article will explain to you what life cycle stages are and how to use them for effective pricing.

To start with, let us observe the major stages of a product’s life cycle.

When a product is first released onto the market, it is in the development stage of its life cycle. Sales are often low at this point since customers are not familiar with the new product.

When a product is unique, sales might be delayed since there may not be any immediate demand from customers. Still, there isn't much competition in general.

You can decide to step up your marketing efforts at this point to spread the word about the new product. By using resources like your company website and social media networks, you can advertise the product with a corresponding budget. Keep in mind that your marketing materials should provide a detailed description of the product.

It might be expensive to develop a new product, so you need to develop a pricing plan that will make your efforts pay off. What should the pricing strategy look like at this stage? Depending on their sector and financial expectations, companies can overprice their products or, vice versa, offer discounts:

• Low product prices (market penetration) can force a company’s entry into the market and increase customer interest. Prices usually go up when the consumer base becomes devoted to the company.
• To generate a rapid profit and cover development expenditures, you could charge extra (use price skimming). High product prices are preferable when there is little competition.

Throughout the growth stage of a product's life cycle, there is a great deal of demand for the product and sales are plentiful. However, it’s not devoid of drawbacks. When you market a product when it's still developing, your rivals can start imitating it. Competitors may introduce an identical item to the one you offer at a lower price, or they may improve the product.

You might need to put more effort into convincing people to prefer your product over other brands. This implies more marketing and price reductions. Also, you can try reaching out to new clients.

What’s the best way to manage prices at this stage? Implement a competitive pricing strategy – it will help you increase sales by offering better deals and appealing to a larger number of customers.

The rate of sales growth slows down as an industry reaches maturity. When a product reaches maturity, the majority of your target market already owns it, which reduces demand. Your sales volume won't increase as it did in the expansion phase. During this phase, several companies keep adding to their products.

The mature stage typically has the highest competition. Products get increasingly distinctive from competitors after they are produced. Many companies focus on promoting their goods and highlighting both their uniqueness and great pricing.

What is the best pricing strategy at this stage? In the maturity stage, many companies still employ a competitive pricing approach. This is justified because competition is typically more intense than during the development phase. To retain customers, think about lowering your pricing, but don't fall below the threshold at which you break even.

Decline is the last phase of a product's life cycle. Now that there is less demand for the product, the company should decide whether to stop production or proceed with sales. Some companies that don't drop a product revamp it by adding features to make it stand out more.

How do you detect the beginning of the decline stage?

• Your product is not receiving the same amount of attention as those of your competitors.
• You are no longer making money off the product.
• Consumers are no longer interested in the item.

The four stages of the product life cycle pricing apply to all goods, tangible or immaterial. Each of these stages might last from a few weeks to several years.

However, it is critical for businesses to always be aware of where their products are in the life cycle. This should also be taken into account when a company decides where to allocate resources and establishes performance goals like sales and profit growth targets.

There are traits specific to each stage of the product life cycle pricing that may be used by company owners to determine the current stage of their product or service:

• Introduction / development. This stage consists of such stages as brainstorming, preliminary or detailed design, prototyping, and manufacturing. The majority of items at this stage are sold moderately, which might result in losses. In case of food goods, the introduction stage may last weeks or months, depending on the nature of the product.
• Growth. By examining your sales and profit numbers, you can decide whether you're in the growth phase. Sales statistics often increase during this phase as a result of a mix of targeted marketing and better product quality. The sales volume is the best indication of the growth stage.
• Maturity. Due to increased competition and a highly saturated market, mature products' sales and profits are often stagnant. In order to win market share at this point, businesses frequently decrease their pricing and ramp up their promotion. However, if sales volume does not grow, these strategies might occasionally result in lower profit margins.
• Decline. A product's sales and profit numbers substantially drop during a fall as a result of developing technology and shifting consumer preferences. Regulatory changes, fierce rivalry, and problems with quality control are the biggest issues that significantly lower sales at this level.

The Product Life Cycle (PLC) outlines the product's market position, which significantly determines the stage of its life cycle, as well as its projected sales. As we have mentioned, the four stages of the product lifespan are introduction, development, maturity, and elimination or decline. Which pricing techniques suit each the best?

You can establish the first selling price of your product using a price skimming approach. Prices can be set high if your product is special and introduces people to something wholly new. High prices make it simple to recoup significant development and marketing expenses.

However, if the newly introduced product is already heavily competitive, you must set the price below average to entice people to test your new offering. For your product launch to be successful, you must take into account the impact of pricing on demand volume and the required stock levels to reach your sales projections.

It might be difficult to determine a product's initial pricing. If your pricing is excessively high, buyers who are price conscious may decide not to test your product, and other consumers may view your brand as being overpriced. On the other hand, if you set your pricing too cheap, people can assume that your product is of low quality and may not buy it.

At the next stage of the product’s life cycle, you should focus on keeping customers once the market has acknowledged you as a brand. Lowering prices is one way to do this. As long as you are able to set prices high enough to cover all your expenditures, you can generate enough money during the growth stage to recoup the original investments and marketing expenses. Establish competitive prices after becoming aware of what your rivals are doing in the market.

At this point, the competition gets fierce: brands have reached a point of saturation, and generating sales becomes more and more difficult. The best solution in this situation is to invest in product redesign to pique consumer interest.

What else can be done during the maturity life cycle?

• Introduce a special discount period offer.
• Provide loyal customers with benefits.
• Launch special membership offers.

These strategies are more effective since they pique people's curiosity even more than price reductions.

Making substantial modifications to the price helps a company achieve its goals when the market becomes saturated and hits its lowest point. High levels of competition, shifting consumer requirements, and market saturation are the three main negative factors at play right now.

To get through this stage, companies and brands should seek ways to cut manufacturing costs and decrease output in order to avoid being trapped with a large amount of inventory that they would then be compelled to sell off at a discount. The goal must be to revive the brand by giving the product new features and promoting it to devoted customers.

Here are some reasons to implement life cycle pricing in your business strategy:

• A better understanding of life cycle pricing can help marketing teams properly price and advertise items to drive maximum sales.
• Enhanced customer loyalty. Businesses can boost customer loyalty by providing sales or discounts at the ideal point in a product's life cycle.
• Profit growth. A brand can more accurately forecast when and how much customers will pay for their items by understanding what to charge for a product at each stage of its life cycle.
• A more trustworthy brand. When companies use life cycle pricing, customers may look for sales or discounts at their stores and view them as trustworthy and reliable when it comes to pricing.
• Better decision-making. Businesses may utilize life cycle pricing to decide whether to change the product, stop producing it, or lower its price.

Product life cycle pricing is an essential strategy for marketers, designers and sales managers because it gives a better understanding of how consumers value the item and how much they are ready to pay. This practice gives businesses the opportunity to draw maximum revenue out of their goods or services.

Whatever stage your product is at, you should always make sure that your pricing is competitive. There’s no need to spend hours manually analyzing the market – automate the process using Priceva’s price tracker. This software will track your rivals’ prices on brand websites and marketplaces, providing you with real-time data as regularly as you need.

Demand for a product (and sales, as a result) changes depending on the product life cycle pricing. Hence, the pricing should be adjusted according to the life cycle.

There are four stages of the product life cycle: introduction (development), growth, maturity, and decline.

The cost of a product at a certain stage of its life cycle should correlate with the demand. At the development stage, customers are not ready to pay for unknown goods. During the growth stage, customers can pay extra to get the desired value, while items at the maturity stage are becoming cheaper because the market is saturated with substitutes from competitors.