Pricing and product life cycle go hand in hand. New, trendy products can garner the highest relative price, while older models often need to be discounted over time. If you’re planning a new product release or feel demand waning for products that used to be bestsellers, this blog post is full of examples that aim to help retailers and brands think critically about how they can successfully leverage the relationship between product life cycle and pricing strategy.
John Harrington, former Senior Director of Product Management at Wiser, explained, “Brands that closely align their pricing with product life cycle have an unprecedented opportunity to optimize for key metrics like revenue, profit, margin, customer acquisition, and more. In such a competitive market, the relationship between the two needs to be addressed as soon as possible, if brands want to put themselves in the best position.”
Let’s dig deep into the stages of the product life cycle and where pricing fits in.
How Product Life Cycle in Retail Works
Product life cycle varies by product type and category, but this framework holds true throughout.
1. Product Development
Conduct as much research as you can during this phase to go to market with a product that customers will love. This includes target market research: learning what shoppers like, what pain points they have, and where you can fit in without entering a volatile market. Next, get the specifics of the product right: functionality, look and feel, how much shoppers are willing to pay for it, and how much potential substitutes already in the market cost.
Pricing in this introductory stage of the product life cycle is crucial to make sure that shoppers are incentivized to buy. It must also fit into the overall company context and product suite. If Apple introduced a $159 iPhone, that would degrade their brand value. But, as discussed below, adding a new product with a higher price point is actually a smart move for a company with a cult following.
After launch, you will start to see the fruits of your labor. Sales should align with projections and contribute to boosting profit margins. Competitors will come out of the woodworks when they get wind of your success, so continuously optimize your product, marketing strategy, and price in order to make it to the third and coveted stage of product life cycle.
Over time, your product might become the status quo in your category and your task is to hold on to that market ownership. If someone told you to pass them a Kleenex, you would know that they’re asking for the box of tissues. This is a prime example of a brand that launched their product nearly 100 years ago, reached the maturity phase, and was able to maintain their status. When you walk into Target with a cold, Kleenex will likely cost you more than Target’s private label, but they are still able to sustain demand at a higher price point due to their hard-won brand value. Becoming the standard in any category is a blessing and a curse. It takes effort to get there and even more effort to remain there.
Pricing has a big impact on this third stage of the product life cycle, as it did back at the introduction of the product to market. In the first stage, an incorrect price could keep consumers from buying it in the first place. Then in the maturity stage, as more competitors enter the market, their loyalty is tested. Are the ingredients or materials you use superior enough to fend off competing products? Have low price competitors put a damper on your sales? These are questions all brands need to ask themselves in order to stay on top. A new pricing strategy might be required to maintain that position and stimulate demand.
No brand wants to enter this stage, but it’s inevitable for many. Maybe the market changed and a new brand stole your market share or maybe consumers simply don’t have a need for your product anymore. To avoid reaching this point of no return, work hard during the previous stage to come up with a comprehensive plan to monitor competitor prices, offerings, and market shifts. Don’t wait until it’s too late.
Who’s Doing it Right
Apple is a master at infusing product life cycle into their pricing. As they introduce new models, they lower the prices on the older ones. This validates the price point of the new model and simultaneously has the potential to encourage more price-sensitive customers to checkout. With Apple’s upcoming launch of their anniversary edition iPhone X, they created a new category of luxury smartphones with a price tag to match. The significant price hike, compared to the iPhone 8, has an air of exclusivity around it, aided by the fact that they will have a limited quantity available. Apple moves through the stages of product life cycle seamlessly and spends much more time in maturity than many other brands.
Pricing and product life cycle will always be linked. You can always be a step ahead of the curve when you take into account competitor prices, demand, and market conditions. Take action at the appropriate stage and sunset products before they have a negative impact on your company.
Editor’s Note: This post was originally published in October 2017 and has since been updated and refreshed for readability and accuracy.