Product and Pricing Strategy



Product and Pricing Strategy

Product Life Cycle Strategies

Product, which is "anything that is capable of satisfying customers needs". Every product have a "life cycle" which similar as living organism, product will growth, become mature and decline. The stages of product's development, called "Product Life Cycle". Product Life Cycle included five stages: Product Development, Introduction, Growth, Maturity and Decline.

Real market situation

1. Introduction Stage

As the name meaning, the product in this stage is new and just begin to enter the market. For example, in the year 2004, Orange introduces a new product, which is the 3G (Third Generation) mobile phones into the market. The company had spent huge amount of development and research cost for the product in the development stage. At the introduction stage, Orange's main objective is to build up the market awareness. Therefore, the marketing and distribution cost of Orange is very huge which aiming to establish branding and quality of product in this stage. It's unlikely to have profit at this stage, it's only a stage to testing the market.

Companies may choose market skimming as the pricing strategy of the product in order to recover the huge development cost. Or they may choose market penetration in order to build up market share. At the very beginning stage of introduction of 3G mobiles, Orange wanted to recover the huge cost in development and chose market skimming. However, successful market skimming depends on inelastic market demand. There were so many substitutes of 3G mobiles in the market so that make market demand more elastic. So, Orange suffered great loss in marketing skimming.

2. Growth Stage

The product in this stage has increasing sales volume and profits. Company spend much on advertising and willing capture market share which has been more stabilized than pervious stage. For example, in the earlier years, the demand of broadband connections is just rising and much more people would like to have one after the introduction of PCCW, which is the market leader of broadband at that time. The sales and profit of PCCW was very huge at that time. And PCCW had invested more into the market in order to obtain more market share. The cost of that was lower than the introduction stage as the marginal cost was low due to the increase in production. Also, PCCW had tried to build up more distribution channel such as setting up sales point on the street and setting up shops in the malls etc. The price of the broadband connections was more stable at a relatively lower level. One of the reasons of low price level was that, more competitors had attracted to enter the market.

3. Maturity Stage

In this stage, the sales of the product increase in a decreasing rate. Much more competitors are attracted to the market. For example, nowadays, companies providing broadband connections are much more than before. The price become stabilize and the sales of the existing companies are increased at a decreasing rate. In order to survive in the market, companies try ...