Projecting and assigning prices to products may seem like guesswork at first glance. Yet choosing price points doesn’t have to be challenging. When managing your product lifecycle, you can assign or reassign prices based on the lifecycle of each product. This can help improve your profit margins and drive consistent sales.
Managing product lifecycles and pricing
Every product your company produces (or adds to its stock) will move through the same four lifecycle stages: introductory, growth, maturity and decline. Each stage lasts for a unique amount of time depending on a few factors, such as the type of product, its novelty in the marketplace, consumer interest and the competition.
Managing product lifecycles closely will help you pinpoint the stage every product is in. This information will guide you on how to adapt pricing, rather than relying on hunches or gut instincts.
Robert Weatherhead, owner of online wine store affordablewine.co.uk, believes that businesses should "never get too far away from the numbers".
"The spreadsheet is your friend," he says. "Monitor sales trends, make sure you know your costs, and be quick to act when things change."
Here's a breakdown of the four lifecycle stages and insider tips on how to set, and revise, a proper price for your merchandise.
1. Introductory Stage
Your recently-launched products are in their infancy. They’ve probably been in research and development for a while — which means you’ve put a significant investment in their 'birth'. As such, you may be tempted to recoup those initial losses quickly, but that can be a mistake. When managing the product lifecycle of new products, gauge introductory stage pricing on consumer sentiment.
For example, if your target audience has shown eagerness or curiosity, you may want to release the product at a relatively competitive price point. If consumers appear sceptical about your product or aren’t sure how it can benefit them, they might be reluctant to pay anywhere near a competitive price.
Weatherhead tends to price conservatively when adding a new product to his online store, but keeps a close eye on performance.
"Unless the wine is really something different, we apply our standard pricing model to see how things go. You can always go up or down from there. We price pretty keenly anyway so this would always put a bottle of wine within an acceptable price bracket to our typical customer."
2. Growth Stage
If all goes well and consumers begin to ask for your product by name, it will enter a growth stage. During growth, your sales will gain momentum. This is the typical 'fly off the shelves' phase. You’ll scale up, increase production and drive down your cost per unit. As you manage this part of the product lifecycle, you can bump up the pricing if it was low during the introductory stage. If you're selling other people's products, your options may differ.
"If demand skyrockets we have two choices," says Weatherhead. "Increase the price to cash in, or maintain to sell through the stock. The decision here often comes down to how quickly we could get more. If we can get more, we will likely maintain the price and sell through; if we can't, we might decide to add a premium to maximise profit and cash flow."
How high should your pricing go? Experts in product lifecycle-based pricing in economics recommend staying in the mid-level range at this juncture. That is, your price should be high, but not as high as you expect it to go. The profits you make while managing the product lifecycle in the growth stage can be used to pay down any leftover R&D costs. Have extra profits? Some leaders use them to create product add-ons, or to innovate and ideate other products that fit within your overall product strategy goals.
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3. Maturity Stage
At maturity, you no longer need to prove that your product is valuable because its reputation stands alone. From a publicity point of view, you have likely reached your total addressable market. Consumers have either bought your product or decided against it.
Does maturity mean high prices? Not necessarily. Some brands managing their product lifecycle decide to slightly reduce their product prices at this stage, especially if other contenders have come into the marketplace. As an example, you might offer discounts or hold frequent sales to keep your product relevant while bringing in predictable revenue. Your goal should be to hang onto the maturity stage if feasible because of its stability.
Weatherhead tends to stabilise costs at this stage and maintain a lower stock level, so if demand drops further, he is not left with excess stock that can't be sold.
4. Decline Stage
It can be challenging to admit that your product is starting to wane in public interest. Yet the decline stage doesn’t have to be a time to give up or discard your product. Even if it’s declining in popularity, you can keep the cash flow trickling in by either setting your price in a steady place, or finding other ways to squeeze cash out of your product.
When Weatherhead notices a decline, he opts for one or more of the following approaches:
- Stimulate demand by pushing the product through marketing channels
- Add the wine to monthly offers to drive sales at a lower price level
- Add the wine to a 'mystery wine box' sold at a discounted price
Many companies use this last option of selling declining products as part of a bigger product suite. That way, the decline stage can still be a period of profitability.
With practice, you can become comfortable pricing your products based on the stage they are in. You can set prices appropriately and enjoy a steady stream of profits. When in doubt, lean into the experts who have used product lifecycle-based pricing in economics and take note of what they've done.
Looking to learn more about pricing? Read our guide to finding the right pricing strategy for your business cash flow.
The American Express Business Gold Card can help make managing cash flow easier. With a payment period of up to 54 days², it gives you greater flexibility with your payment schedule as you adjust your spending based on the product lifecycle stages of your business.
- Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
- The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card