Question

Week 4: Factors influencing pricing strategy over a product’s life cycle leading to a sustainable and profitable price for that product

• Describe the price-setting process, in the context of pricing strategy, inclusive of the balance among costs, end user or customer value and competition.
• How does a particular product's life cycle affect this price setting process?

Answer 1

The success of every business depends upon the 4 p's of marketing mix-product,price,promotion,placement.The decisions you made with regard to all of these elements define the success and failure of the business. There are many factors that will have an influence price of the product or service.Some of them are internal and some external, and most of them will fluctuate over time.the major factors that influence the pricing of a product includes

1.Competition:

Prices for a product or service are set primarily on the basis of prices of the competition.this pricing is best suited for a price-sensitive and highly competitive market.we should always take our competition’s pricing into account when setting our own pricing, unless we hold a monopoly. If consumers perceive the product and competition having equal value, product will lose out in a big way if the competitor’s price is lower in the market.

2.Market Demand:

The supply and demand of a product always play a big role in stting the price of a product.If a product is in high demand, particularly if demand exceeds supply, then the market can bear a higher price and vice versa.

3.Brand strategy:

Setting the price of a product without a image of your brand objectives can destroy all brand-building efforts. price is a part of your brand image.Tiffany & Co., whose consumers expect high-end pricing. If products’ prices are not in line with the brand image, it will most likely confuse consumers instead of convert them.

4.Cost of goods sold:

The cost of goods sold always plays an integral role in any pricing strategy.If you want to make profit on your product you must charge a higher price than what it costs to produce and transport the product.

5.Consumers:

The producer should consider various consumer factors while fixing the price of a product. The consumer factors that must be considered includes the price sensitivity of the consumer, purchasing power.

6.Government control:

Government rules and regulation must be considered while fixing the prices. In certain products, government may announce administered prices, and therefore the producer has to consider such regulation while fixing the prices.

7.Product life cycle:

The stage at which the product is in its product life cycle also affects its price.during the introductory stage, the product may charge lower price to attract the customers.during the growth stage, a firm may increase the price.

How product life cycle affects pricing of a product

The Stages of product life cycle includes, Development,Growth,Maturity and Decline

1.Development:

The initial stage of a product’s life cycle is development, where the product is first introduced to the market. Typically, sales are slow during this stage because consumers are unfamiliar with the new product.

Pricing strategy:Many businesses either price their products low or high, depending on their industry and financial projections.Pricing products low (market penetration) helps a business to penetrate in the market and gain customer attention.once the business has a loyal customer base, it typically increase prices.

Producer may choose to introduce products with high prices. He might price products high (price skimming) to try to make a quick profit and make up for the costs of developing. Pricing products high is especially good if there is a higher demand for a product and lack of competition in the market.

2.Growth:

During the growth stage of the life cycle of a product, there is high demand for the product and a lot of sales.This is great stage for the product.The producer need to work on getting the customers to choose the product over the competition. This requires more marketing and lowering the price of the product.

Pricing strategy:Because of the competition, producer need to lower the price of the product and adopt a competitive pricing strategy.

3.Maturity:

In the maturity stage, there isn’t much sales growth. When the product is mature, most of the target customers already have the product, so there is not much demand in the market.Maturity stage has the most competition. Once products are developed, they are more unique from competitor to competitor. Many businesses work on marketing their product by emphasizing its uniqueness as well as any discounts.

Pricing strategy:Many businesses continue using the competitive pricing strategy in the maturity stage.Competition is usually more severe than in the growth stage. Consider cutting the prices to keep customers, but don’t go below the break-even point.Producers also use a discounted pricing strategy so that consumers will prefer their product. With a discounted pricing strategy,they need to mark down the price.

4.Decline:

The final stage in a product’s life cycle is decline. There is less demand for the product,and businesses must decide if they want to discontinue the product or keep producing and selling it.Some businesses that don’t pull the product from market, they add more features to make it stand out and give it a fresh life.

Pricing Strategy:During a product’s decline, many businesses choose to lower its price.There are a few different pricing strategies in this stage.A discounted pricing strategy to increase customer traffic. This will help free up space at the business for new products.Another pricing strategy option is bundling. With bundling,producer could include the declining product in a deal with other products. This can help get rid of the declining product and increase sales and revenues.