Question

What are the stages in a product’s life cycle? In which of these stages would a value-based pricing strategy be appropriate, and how would / could a supplier communicate the price / value in order to set profit maximizing prices across market segments? Explain your answer.

Answer 1

Answer-

Product life cycle is name implies measures the costs and revenue of a cost objects i.e a product or project over it's entire project life. Each product has life cycle. The life cycle of a product vary from a few months to several years.

STAGES OF PRODUCT LIFE CYCLE-

1) Market Research- This usually means that market research will establish what product the customer wants, how much he is prepared to pay for it how many he will buy.

2) Specification- When market research has established what is to be made, it will be necessary to turn the general statement of requirement into a detailed specification, which will tell the designer and manufacturing engineer, precisely what is required.

3) Design- With precise specification, the designer can produce the drawings and process schedule which defines the geometry of the product and the manufacturing process.

4) Prototype Manufacture- From the drawings, it will be possible to manufacture a small number of the product. This prototype will be used to develope the product.

5) Development- When the product has been made for the first time, it is necessary to prove that it meets the requirement of the specification. In fact, when a product is first made it rarely meets the requirement of the specification and changes have to be made until it does. This period of testing and changing is 'development'.

6) Tooling- When the product is shown to meet the requirement of the specification and if calculation suggest that it will be profitable, the decision will be made to make it to sell.

7) Manufacture- The manufacture of the product involve the purchase of raw material, the purchase of bought out componants, the use of labour to make and assemble the product, and the use of supervisory labour.

8) Selling- When the product is fit to sell and available, it may be necessary to spend the money on a sale campaign to sell the product.

9) Distribution- In the process of selling the product, it must be distributed to the sales outlets and to cutomers. It involves aapointment of sales agents or distributors.

10) Product support- When the product has been bought, the customer will expect it to be supported. The manufacturer or supplier will have to make sure that the after sales servicing are available for the entire life of the product.

11) Decommissioning or Replacement- When the life of the product is over and manufacturing comes to an end the plnat used to manufacture the product must be re used, sold, scrapped or decommissioned in a way that is acceptable to the society.

PHASES OF THE PRODUCT LIFE CYCLE

1) Introduction- During the introduction phase a product is launched into the market. Competition is almost negligible and profits are non-existent

2) Growth- Under growth phase sales and profits ries at a rapid pace. Compititores enter the market often in a large numbers. As a result of competitions, profits starts declining near the end of the growth phase.

3) Maturity - During the phase of maturity, sale continue to increase, but at a decreasing rate. When sales level start reducing, profit of the both producers and middlemen decline. The main reason is intense price competition, alternative products available in the market.

4) Decline- Decline in sales volume characterises this last phase of the product life cycle. The need or demand for product disappears. Availablity of better and less costly substitutes in the market indicates the arrival of the decline phase.

5) Deletion- At the end management takes decision to withdraw the product from the market and stops manufacturing it. This stage is called Deletion.

In product life cycle product cost, revenue and profit patterns tend to follow predictable courses through the product life cycle. Profit first appear during the growth phase and after stabilising during the maturity phase hence this is the best stage for value based strategy and for maximization profits and wealth becuase sales and profits rise at a rapid pace.