and pricing are crucial for strategic decision-making. This approach considers a product's entire lifespan, from development to decline, helping companies make informed choices about costs, pricing, and long-term profitability.
Understanding product life cycle stages and their pricing strategies is key. By applying life cycle costing, businesses can better manage expenses, set competitive prices, and maximize profits throughout a product's journey in the market.
Product Life Cycle Stages and Pricing
Stages of Product Life Cycle and Their Characteristics
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Product life cycle encompasses four distinct stages products go through from introduction to decline
Introduction stage marks the product's initial entry into the market with low sales and high marketing costs
Growth stage features rapidly increasing sales and market acceptance, attracting competitors
Maturity stage exhibits slowing sales growth, intense competition, and focus on product differentiation
Decline stage shows decreasing sales and profitability as newer products enter the market
Pricing Strategies for Different Life Cycle Stages
Introduction stage pricing often employs skimming or penetration strategies to establish market position
sets high initial prices to recover development costs quickly (luxury cars)
uses low prices to gain market share rapidly (streaming services)
Growth stage pricing focuses on maintaining or increasing market share while maximizing profits
Competitive pricing becomes crucial as more players enter the market
Price adjustments may be necessary to respond to competitor actions
Maturity stage pricing strategies aim to maintain market share and profitability
becomes important to differentiate from competitors
Promotional pricing may be used to stimulate demand (seasonal discounts)
Decline stage pricing often involves lowering prices to maintain sales volume
Harvesting strategy maximizes short-term profits before product discontinuation
Revitalization attempts may include repricing to target new market segments
Life Cycle Costing
Understanding Life Cycle Costing Concept
Life cycle costing calculates the over a product's entire lifespan
Encompasses all costs from initial concept through disposal or decommissioning
Provides a comprehensive view of product profitability and cost management
Helps in making informed decisions about product development, pricing, and long-term strategies
Considers both internal costs to the company and external costs to customers and society
Components of Life Cycle Costs
Research and development costs include expenses incurred before product launch
Concept development and feasibility studies
Prototype creation and testing
Patent and intellectual property protection
Production and manufacturing costs cover expenses during the product's active life
Raw materials and component procurement
Labor costs for manufacturing and assembly
Quality control and inspection processes
Marketing and distribution costs involve expenses to bring the product to market
Advertising and promotional campaigns
Sales force training and support
Distribution network setup and maintenance
Total Cost of Ownership and Its Importance
Total cost of ownership extends beyond the initial purchase price
Includes ongoing costs such as maintenance, repairs, and operational expenses
Considers disposal or recycling costs at the end of the product's life
Helps customers make informed purchasing decisions by revealing long-term costs
Enables companies to design products with lower lifetime costs, increasing competitiveness
Supports sustainability efforts by encouraging the development of more efficient and durable products