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 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.
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.
Managing product lifecycles closely will help you pinpoint the stage every product is in. This information will help you know how you should proceed with product lifecycle-based pricing, rather than hunches or gut instincts. Below, I’ve broken down the four lifecycle stages and given insider tips on how to set a proper fee for your merchandise.
Your recently launched products are in their infancy, or the introductory stage. 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 instead of trying to recover money.
For example, if your target audience has shown eagerness or curiosity, you may want to release the product at a relatively competitive price point. On the other hand, if consumers appear skeptical about your product or aren’t sure how it can benefit them, they might be reluctant to pay anywhere near a competitive price. To be sure, far more products fit into this latter description, which is why so many introductory stage items are temporarily offered at irresistibly low prices.
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.
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.
At maturity, your product has reached its zenith. You no longer must prove that it’s valuable because its reputation stands alone. From a publicity point of view, you basically have reached your total addressable market. Consumers have either bought your product or decided to pass it up.
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.
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 at a steady place or finding other ways to squeeze cash out of your product.
You might even want to consider bundling your product with other offerings in your lineup. Plenty of companies sell their 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.
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