Product Life Cycle and Industrial Pricing
Pricing strategies vary as the industrial product moves through its life cycle. The industrial pricing strategy is a key factor in each of the four cells of product life cycle.
- Introductory Stage Pricing Strategy: There are two pricing strategies available for a new product which is in the introductory stage of its life cycle. These are: (a) Penetration Strategy, and (b) Skimming Strategy. An industrial marketer must analyze the price from the angle of the buyers. How soon the firm should try ton recover the investment on the new product is another important factor to be considered by the industrial marketer.
- Penetration Strategy: When the price elasticity of demand is high or the buyers are highly price sensitive, strong threat exists from potential competitors and opportunity exists to reduce the unit cost of production and distribution with increase in volumes the penetration strategy is effective. The firm can draw on experience curve effect and can also achieve the economies of scale. This would give the company a strategic advantage of cost leadership over the competitors. The firm can adopt the pricing objective of long term profit through large market share instead of short term profit objectives.
- Skimming Strategy: For distinctly new product meant for a market segment that is not sensitive to the initial high price the skimming strategy can be adopted. The greatest advantage of this strategy is that it focuses on recovering the investment at an early stage by generating more profits. The price will be reduced at the latter stages to reach other market segments that are more sensitivity to price. The limitation of the skimming strategy is that more competitors are attracting due to high profits. The products that are distinctive with sophisticated technology and capital intensity are suitable to adopt this strategy.
- Growth Stage Pricing Strategy: As the new competitors enter the market and more customers start using the product at growth stage the industrial marketer face the pressure of reducing the prices below the introduction stage. At this stage the industrial marketer focuses his attention on product differentiation, product line extension and building new market segments at this stage. As more suppliers enter the market the industrial buyers follow the purchasing policy of buying from more than one supplier. Therefore, the innovator firms are under the pressure to reduce the price.
- Maturity Stage pricing strategy: The competitors are very aggressive in the maturity stage. The industrial marketer has to cut into competitors market share to increase sales volume. By adopting the low price strategy to match the competitor’s prices the industrial marketer can achieve the high volume of sales.
- Decline Stage Pricing Strategy: At the decline stage the industrial marketer has a wide choice of pricing strategies subject ton certain conditions. The firm need not cut the price but reduce the cost to earn sum profits provided it has built a reputation of high product quality and dependable services. Another major strategy is to reduce the prices to increases sales volume above break-even volume of sales and use the product to help sell other products in the product mix.