Pricing Pres Final

7/31/2019 Pricing Pres Final

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Pricing Over the Product Life

CycleAdapting Strategy in an Evolving Market

By: Souls of Empowerment (S.O.E)

Christelle Cassimy Meranda Ramoutar

Deniese Drakes Nia Modeste

Ebony Anderson Riane Rosales

Janine Charles Farray


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Agenda

Brief Intro into PLC New Products and the PLC

Pricing the Innovation for market

introduction Pricing for new products in growth

Pricing for established products in

maturity Pricing a product in market decline

Summary

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Developed by Raymond Vernon in

1966 to explain pattern of international

trade

Products pass through predictable

phases

Understanding the Product Life Cycle

(PLC) can help define a companys

long run strategic plan.

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New Products and their PLC

STAGE CHARACTERISTICS

Market Introduction 1. Costs are very high

2. Slow sales volumes to start

3. Little or no competition

4. Demand has to be created

5. Customers have to be promptedto try the product

Growth 1. Costs reduced due to

economies of scale

2. Sales volume increases

significantly

3. Profitability begins to rise4. Public awareness increases

5. Competition begins to increase

with a few new players in

establishing market

6. Increased competition leads to

price decreases4


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STAGE CHARACTERISTICS

Maturity 1. Costs are lowered as a result

of production volumes increasing

and experience curve effects

2. Sales volume peaks and

market saturation is reached

3. Increase in competitors

entering the market

4. Prices tend to drop due to theproliferation of competing

products

5. Brand differentiation and

feature diversification is

emphasized to maintain or

increase market share6.Industrial profits go down

Decline 1. Costs become counter-optimal

2. Sales volume decline

3. Prices, profitability diminish

4. Profit becomes more a

challenge ofroduction/distribution efficienc

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PRICING THE

INNOVATION FORMARKET INTRODUCTION


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Innovation

A unique product that buyers find foreign

Not part of the buyers lifestyles

Requires one to alter their thinking via the process ofbuyer education or Information Diffusion.

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Information Diffusion

Seeing/ hearing about the product experiences ofothers. (eg. person to person)

Recognition of Information diffusion is extremelyimportant

When information must diffuse through a population ofpotential buyers, the long run demand for an innovativeproduct at anytime in the future depends on the numberof initial buyers.

Early adopters are not generally a random sample ofbuyers. They know little about how attributes are to bevalued, therefore value communications and effectiveprograms are attributes used to readily influence whichattributes drive those initial purchase decisions and how

they are valued 8


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What is an appropriate PriceStrategy?

Important to recognise price sensitivity when one firstencounters an innovation, this bears little or norelationship to their long run sensitivity.

Problem: Buyer ignorance

Primary goal is to define the products worth througheffective price and value communication

It is important to consider the value message that

various list price strategies send to the market.

In addition to list price, marketers must consider otherValue Communication approaches

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Value CommunicationApproaches

1. Communicating Value with Trial Promotions

2. Communicating Value with Direct Sales

3. Marketing Innovations through Distribution Channels

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C


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Communicating Value withTrial Promotions

Determining actual price on early adopters depends onthe relative cost of different methods for educatingbuyers about the products benefits

If products are frequently purchased, has a low

incremental cost and its benefits are obvious after justone use the most effective way to educate buyers maybe to let them sample the product.

A product that requires the buyer to learn skills beforethey can realize the benefits does not immediately

reveal their value when sampled once.

Instead market development requires more directeducation of buyers before they make their firstpurchase.

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Communicating Value withDirect Sales Large dollar expenditure items require education from

direct sales force trained to evaluate buyers needs to

explain how the product will satisfy them.

Salespersons job is to help the buyer imagine thebenefits of the product being offered beyond the

capability of the other product they may be using. This

would lead to them abandoning tradition to make large

expenditure on new, risky technology.

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M k i I i h h


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Marketing Innovations throughDistribution Channels

Innovator must convince the distributors who carry theproduct to promote it vigorously. This can be done via lowwholesale pricing.

Low Wholesale Pricing leaves distributors and retailers withhigh margins, giving them incentive to promote the product

with buyer education and service.

Price Maintenance- maintains margins by refusing to dealwith distributors or retailers that discount during theinnovation stage.

A company can allow discounting but ay incentive fees forstocking the product, for co- op advertising, in store displays,premium shelf space and onsite service and demonstration.

Also, offer incentives directly to the middlemans salespeople

for taking the time to understand and promote the product.13


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Pricing New Products in Growth

In the Growth Stage:

Pricing concerns changes to costs and benefits of

alternative brands

The innovator and the late entrant assumes

competitive positions.

The marketing strategy is decided where it would

be placed on the continuum between a pure

differentiated product strategy and a pure costleader-ship strategy.


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Pricing with a Differentiated

Product Strategy Focuses on developing unique attributes for its

products. E.g. Intel.

Can also be focused on a particular buyer segmentor at multiple segments.

Particular segmentuses skim pricing. E.g.

GUCCI.

Multiple segments uses neutral or penetration

pricing E.g. P&G. 15


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Pricing within a Cost Leadership

Strategy.

Focuses on becoming a low cost producer.

(Can also be focused on a particular buyer

segment or at multiple segments).

Industry-wide cost leadership- penetration pricing

is used.but it is NOT the only proper strategy

for establishing and exploiting Industry-wide cost

leadership.

Neutral pricing can also be used for industry wide

and narrow customer focus. 16


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Price Reductions in Growth

A reduced price is usually best in this stage- Customers are more price sensitive

- Lower price speeds adoption & leads to faster market growth

- Price reduction possible at this stage due to cost economies

Generally no price wars, however there areexceptions due to production volume

Should adopt a segmented pricing strategy to caterto segments that naturally emerge at this phase inthe products life. Based on

- Different knowledge & experience with product

- Different Value & Cost

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Pricing the EstablishedProduct in Maturity


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CHARACTERISTICS OFTHIS STAGE

Pricing is essential for survival The innovators, early adopters and

early majority are joined by the

late majority

Continued expansion on ones

customer base slows down in theface of competition

Defending market share is

important

To avoid sunk costs of

investment in Growth stagewhen operations are at

capacity

To avoid absolute sales

decline

Latitude in pricing is limited 19


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Pricing Latitude

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Pricing Latitude

Latitude if further reduced by factors thatincrease price competition:

1. Buyers eyes begin to wander

Repeat buyers evaluate competing brands, reducing brandloyalty and the value of a brands reputation

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Pricing Latitude


2. Imitation products appear

Imitation of successful products reduces product differentiationand increases competition creating homogeneity

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Pricing Latitude


3. Buyers increased price sensitivity

The production of proven standardized product becomesattractive to new competitors. Similar products introduced at

cheaper prices become appealing to price sensitive customers.

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How to deal with pricing

competitionA marketing strategy that renews

industry growth

A technological breakthrough

Live with the competitive pressure

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Opportunities to improve pricing

effectiveness Unbundling related products and

services

Improved estimation of prince

sensitivity Improved control and use of costs

Expansion of the product line

Re-evaluation of Distribution channels

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Strategies in the Decline Stage

Strategy depends on the organizations goal:Exit with minimum losses

Survive with competitive positions intact.

3 strategies in the decline stage:

Retrenchment: partial or completecapitulation of some market segments torefocus resources.

Harvesting: A phased withdrawal from anindustry.

Consolidation: An attempt to gain a strongerposition in the declining industry.

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Conclusion

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Pricing Pres Final

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