Chapter-7-Pricing-Over-the-Product-Life-Cycle.pptx

Chapter 7

1. CHAPTER 7 Pricing Over the Product Life Cycle Prepared by: Group 1 Alcoriza , Marysol David, Kristine Jane Eleponga , Alyana Insigne, Joyce Liwag , Niño Jose Vecinal , Vhalene Verroya , Maris

2. Objectives LO1 Discuss the rationale behind the marketing concept of product life cycles LO2 Explain key pricing considerations and strategies relative to the product life cycle.

3. Adapting Strategy in an Evolving Market

4. PRODUCT LIFE CYCLE OVERVIEW Planning and product lunching

5. New Products and the Product Life Cycle

6. New Products and the Product Life Cycle Two reasons that makes new product pricing especially important: New products represent a primary source of organic volume and profit growth and avoiding pricing mistakes can have both short and long-term impact on financial performance. New product launch creates an excellent opportunity to reengage with customers to change what and how they purchase.

7. Pricing the Innovation for Market Introduction An innovation is a product so new and unique that buyers find the concept somewhat foreign.

8. Recognition of diffusion process is extremely important in formulating pricing strategy for two reasons: When information must diffuse through a population of potential buyers, the long-run demand for an innovative product at any time in the future depends on the number of initial buyers. The early adopters are people particularly suited to evaluate the product before purchase. Pricing the Innovation for Market Introduction

9. Communicating Value with Direct Sales Education usually involves a direct sales force trained to evaluate buyers’ needs for innovations that involve a large dollar expenditure per purchase.

10. Marketing Innovations through Distribution Channels Innovative products that are sold indirectly through channels of distribution do not have sufficiently large sales per customer to make direct selling practical. The problem of educating buyers and minimizing their risk does not go away when the product is handed over to a distributor

11. Pricing New Products for Growth Once a product concept gains a foothold in the marketplace, the pricing problem begins to change. In growth , the buyer’s concern about the product’s utility begins to give way to a more calculating concern about the cost and alternative brands.

12. Two Marketing Strategies Differentiated Product Strategy Cost Leadership Strategy Pricing New Products for Growth

13. Pricing within a Differentiated product strategy The role of pricing in differentiated product strategy is to collect the rewards from producing attributes that buyers find uniquely valueable . Ex. Skim pricing - Godiva (chocolate), BMW (automobiles), and Gucci (apparel), use skim pricing to focus their differentiated product strategies.

14. Skim pricing/Price skimming a pricing strategy that set new product price high and subsequently lowers them as competitors enter the market. Penetration pricing is also possible for a differentiated product, this is common in industrial products. - Microsoft used penetration pricing to ensure that its product became the dominant architecture and default standard for software application programmers.

15. Pricing within a Cost-leadership Strategy The firm directs its marketing efforts toward becoming a low-cost producer. In growth, the firm must focus on developing a product that it can produce at minimum cost, usually but not necessarily by making the product less differentiated. The firm expects that its lower cost will enable it to profit despite competitive pricing. Ex. Penetration pricing - Japanese manufacturers used this to exploit their cost advantages and dominate world markets for TV sets.

16. Price Reductions in Growth The best price for the growth stage , regardless of one’s product strategy, is normally less than the price set during the market development In most cases, new competition in the growth stage gives buyers more alternatives from which to choose. The growth stage is characterized by a rapidly expanding sales base. New firms can generally enter and existing ones expand without forcing their competitors’ sales to contract. stage.

17. Pricing the Established Product in Maturity A typical product spends most of its life in maturity , the phase in which effective pricing is essential for survival. Earning a profit in maturity hinges on exploiting whatever latitude one has.

18. Pricing latitude is further reduced by the following factors that increase price competition as the market moves form growth to maturity: the accumulated purchase experience of repeat buyers improves their ability to evaluate and compare competing products, reducing brand loyalty and the value of a brand’s reputation. the imitation of the most successful product designs, technologies, and marketing strategies reduces product differentiation, making various brands of different firms more directly competitive with one another. And buyers’ increased price sensitivity and the lower risk that accompanies production of a proven standardized product attract new competitors whose distinctive competence is efficient production and distribution of commodity products.

19. Unbundling Related Products and Services The goal in the market development stage is to make it easy for the potential buyers to try the product and experience its benefits. In growth, it makes sense for the leading forms to continue bundling products for a different reason because the bundle make it more difficult for competitors to enter.

20. Improved Estimation of Price Sensitivity In maturity, when the source of demand is repeat buyers and when competition becomes more stable, one may better gauge the incremental revenue from a price change and discover that a little fine tuning of price can significantly improve profits.

21. Improved Control and Utilization Costs As the number of customers and product variations increases during the growth stage, a firm may justifiably allocate cost among them arbitrarily.

22. Expansion of the Product Line Although increased competition and buyer sophistication in the maturity phase erode one’s pricing latitude for the primary product, the firm may be able to leverage its position to sell peripheral goods or services that it can price more profitability by expanding its product line.

23. Re-evaluation of Distribution Channels Finally, in the transition to maturity, most manufacturers begin to reevaluate their wholesale prices with an eye to reducing dealer margins. There is no need in maturity to pay dealers to promote the product to new buyers.

24. Pricing a Product in Market Decline The goal of strategy in decline is not to win anything; for some it is to exit with minimum losses. For others the goal is simply to survive the decline with their competitive positions intact and perhaps strengthened by the experience.

25. There are three general strategic approaches that can be adopted in a declining market, they are: Retrenchment; Harvesting; or Consolidation. Alternatives Strategies in Decline

26. Retrenchment is a carefully planned and executed strategy to put the firm in a more viable competitive position, not to stave off collapse.

27. Harvesting strategy is a phased withdrawal from an industry. It begins like retrenchment with abandonment of the weakest links. The goal of harvesting is not a smaller, more defensible competitive position but a withdrawal from the industry.

28. Consolidation strategy is an attempt to gain a stronger position in a declining industry. Such a strategy is a viable only for a firm that begins the decline in a strong financial position, enabling it to weather the storm that forces its competitors to flee.

29. Thank You and Godbless