Question

Passage require analysis and breakdown

As with all products, and in the simulation, the pricing strategy should change according to its position in the product’s life cycle. Knowing what initial pricing strategy to use can be tricky. As the product moves through its life cycle, pricing becomes much easier to determine. There are four stages to a product’s life cycle: Introduction, growth, maturity and decline (Kotler & Keller, 2016).

Introduction stage:In the introductory stage, the business advances capital funds to establish itself. It opens sales locations, manufactures, a supply of its product, devotes time and finances toward advertising, and setting up in the best appropriate market. All legal filings are obtained, including patents, trademarks, copyrights, etc., to establish the branding process. Pricing varies, depending on the organization’s perspective. Some price their product low, to quickly develop a customer base. Others price their product a little more expensively, to recoup some initial costs and expenses from the development process. Any marketing at this stage is directed toward avid enthusiasts.

Growth stage:In this phase, the corporation’s objective is to increase the brand’s recognition. Sales climb rapidly, and prices either fall a little, or stabilize. This is directly related to how quickly the demand rises. With inflated demand, manufacturing and distribution networks need to expand, which will reduce per unit costs, which in turn increases profits.

Maturity stage:In this stage, sales growth slows. However, this stage is longer than the two preceding stages together. “Three ways to change the course for a brand in the maturity stage are market, product, and marketing program modifications” (Kotler & Keller, 2016, p. 154). In this stage, if the company holds a substantial share of the market, it could price its product competitively against its rivals, or maybe even lower.

Decline stage:In this stage, sales generally decrease. The product may be outdated, with competitive products being more technologically advanced. Pricing and production can be reduced. Production may even be discontinued. Yet, if there is an opportunity to reestablish the product in another market, it can perhaps be rebranded, and the corporation can continue selling it in its maturity stage, and at its current pricing.

Answer 1

The given percept explains the impact of the product life cycle on the pricing strategy of the firm.

A product life cycle describes the progress of the product from the stage of its creation towards the stage when it is taken away from the market or discontinued forever. There is four identified stage in the product life cycle. The deep and intricate understanding of the product life cycle and the stage in which the business is operating helps the business managers in price fixation, sales management, also predicting the profitability of the business. The process of observing the product throughout its life cycle and taking the decisions accordingly is known as product life cycle management.

The four identified stages of the product life cycle and the pricing strategy in each stage is explained as follows:

1. Product Development Stage: This is the stage when the product is introduced in the market. Sales are low because of the uniqueness of the product and also the competition is low. Depending on the industry, the businesses may keep the price low so as to enjoy easy entry and penetration into the market or high so as to make profits because of the lower degree of competition.

2. Product Growth Stage: This stage generally observes high sales volume and thereby higher demand for the product. But this stage might call for new competitors in the market. This depends on the nature of the industry and the complexity of the product. The increased competition in the market may drive down the price. But, if the company is diligent enough to adopt competitive pricing strategy, the firm would be able to make good profits.

3. Product Maturity Stage: This stage is not marked by accelerated sales growth as the company has already reached the targetted market segment. Hence, there are no incremented demands. On the contrary, there is a high level of competition from the new and unique competitors and it is advisable for the businesses to adopt discounted pricing strategy so as to attract the customers towards their products.

4. Product Decline Stage: This is the final stage of the product life cycle where the demand falls considerably and at times it becomes unprofitable for the businesses to continue their operations. The businesses either lower their prices or introduce new version, form or variant of the product to stay in business. But, if nothing works, they withdraw themselves from the market.