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Strategically, pricing policy is always aimed at the future, and the future, in turn, is associated with certain changes. And therefore we can say that the choice of pricing strategy directly depends on the stage of the product’s life cycle

PRODUCT LIFE CYCLE - the period of time from the beginning of the creation of a product until the end of its demand on the market and the cessation of production. A product, like an animate being, is born, develops, becomes obsolete and “dies”, i.e. gives way to another product that has higher consumer properties and other advantages. There are four main phases of life cycle: introduction, growth, maturity and decline. By analyzing these phases, it is possible to obtain data on the characteristics of the market, the prospects for the dynamics of product sales, the forms of competition typical for this phase, the levels of costs and profits, which will allow optimizing the pricing policy and developing the company’s pricing strategy for a given product or product group.

Dependence of pricing strategy on the product life cycle:

1. Market introduction stage.

There are two options for setting prices here. If a product has serious competitive advantages, it is unique and there is little competition, it is advisable to use the “cream skimming” strategy; the condition for applying this strategy is the high quality of the product or its exclusivity, which makes it possible to ask for the maximum price and get the maximum profit. This strategy focuses on selling a product to a narrow group of consumers who want to purchase it for its unique properties. This strategy provides a quick payback on research and development of a new product, as well as a powerful level of launch advertising. If a product does not have obvious advantages, it is advisable to use a “market penetration” strategy; a necessary condition for the implementation of this strategy is the low cost of the product, which makes it possible to set a low price in order to quickly create a customer base. Low prices encourage trial purchases and mass consumption by a large consumer base. Thus, low prices provide the opportunity to quickly test the product and create favorable customer attitudes before competitors invade the market

2. Growth stage.

At this stage, the market is growing due to an increase in the number of users and consumers of this product. As the market expands, competition increases. Competitors' offers usually differ in properties, but price becomes a competitive tool. Here, as at the previous stage, two options for setting prices are also possible: if at the previous stage the “cream skimming” strategy was used, then at this stage it is advisable to reduce prices (since competitors have already copied the main advantages of the product, a low price can be used to increase market share and restrictions on the entry of competitors into it.); if a “market penetration” strategy was used, then it is advisable, on the contrary, to slightly increase prices; at this stage, setting a high price can be used to increase profits by skimming off the cream, since the market has already been covered. Or it is possible to choose a “follow the leader” strategy (i.e., set prices at the price level of the market leader).

3. Maturity stage.

At this stage, substitute products appear and market growth slows down or stops. Price becomes important as the product becomes standardized and offers little innovation. It is best for the company to avoid this stage or at least minimize its consequences by constantly improving the product or quality of service. Pricing alternatives: maintaining high prices to finance the development of new products or using low prices to simply maintain competitiveness and maintain market share. It should be noted that the large volume of sales at this stage compensates for the reduction in prices.

4. Stage of leaving the market.

Accompanied, as a rule, by a sale of inventory. At this stage, one of two strategies can be used: reducing the price to the cost level in order to sell out inventory as quickly as possible; refusal to further reduce prices and attempt to maintain profit levels without worrying about market share.

The skimming strategy is a pricing strategy that is used:

· firstly, to new products appearing on the market for the first time, protected by a patent and having no analogues.

· secondly, to goods aimed at wealthy buyers who are interested in the quality and uniqueness of the product, i.e. to a market segment where demand does not depend on price dynamics.

· thirdly, to new products for which the company does not have the prospect of long-term mass sales, including due to the lack of necessary capacities.

· fourthly, to test the product, its price and gradually bring it closer to an acceptable level.

I believe that an example of a product for which a skimming strategy can be used is:

1. Clothing models from the new collection of the famous designer. This is a product appearing on the market for the first time, aimed at wealthy buyers who are interested in the quality, uniqueness of the product and purchasing it is considered very prestigious.

2. New products on the mobile communications market. This is a product appearing on the market for the first time and has no analogues for some time. A product aimed at wealthy buyers who can’t wait to purchase it regardless of the price.

A "strong market penetration" strategy is a pricing strategy in which a new product is priced relatively low in order to attract a large number of buyers and gain a large market share.

An example is:

1. Launch of a new drug onto the market. In this case, when applying the “strong market penetration” strategy, the following goals are pursued: quickly achieving large volumes of sales of the drug; achieving a high market share and a strong market position; a relatively low price can reduce the risk of failure when bringing a drug to market; preventing potential competitors from entering the market.

2. Manufacturers of household appliances to implement the strategy of “strong market penetration”, expanding the company’s product range, leading to stabilization of profits and greater coverage of market segments. Large manufacturers of washing machines always have a model with a minimum set of characteristics and an affordable price.

Price skimming and market penetration strategies provide useful definitions of pricing objectives.

In a skimming strategy, high prices are set early in a product's life cycle and then the new product is introduced into market segments with the least price elasticity of demand.

(Price elasticity of demand is measured by the ratio of the percentage change in the quantity demanded of a product to the percentage change in its price. The larger this ratio, the more elastic the demand is called.) Thus, a new product is first offered to those market segments where demand is little influenced by prices - where customers are willing to pay the highest price for the product. Over time, prices will gradually decrease and help attract buyers from other market segments.

The intended goal of a skimming strategy is to maximize profits. When following this strategy, companies recognize the differences in price elasticity between market segments and implement special policies for different segments. This is what economists call price discrimination - offering different prices to different customers. In such a case, different prices are offered at different times.

A market penetration strategy, on the other hand, aims to maximize sales and gain significant market share. To cover the largest possible share of the market space, the company sets minimum prices, and then reduces production costs and gradually reduces the price further. It is assumed that gaining a large market share will allow the company to control the market to a certain extent, creating the necessary basis for promoting the product and countering the emergence of competitors.

One of the risks of a skimming strategy is that high profits are likely to attract new competitors. We have already indicated possible disadvantages of the market penetration strategy.

Both the skimming strategy and the market penetration strategy can be consistent with the company's long-term goal of achieving a certain return on investment, and both can be used in product life cycle planning. The goal of a penetration strategy is to quickly achieve a leading position in the market to maximize the return on investment in a new product and prevent the entry of competitors. The purpose of the skimming strategy is to recover the funds invested in a new product in the early stages of the life cycle, because competitors will sooner or later force them to lower prices and profits will decrease.

The attractiveness of a skimming or penetration strategy is determined by the type of product and the state of the market, including its characteristics such as demand and competition. The skimming strategy should not be used in a market where there is no clear division into segments. The “cream skimming” strategy assumes that the company’s product differs from competitors’ product offerings (is unique). One of the key factors for a skimming strategy is the period of time it will take competitors to develop and bring a similar product to market. Strong patent protection is a strong argument in favor of a skimming strategy.

More on the topic “Skimming” strategy and market penetration strategy:

1. Chapter 13 Growth Strategies: Product Market Penetration and Expansion, Vertical Integration, and the Big Idea
2. The concept of strategy and classification of strategies Approaches to defining strategies
3. 1.2. MAIN WAYS OF ENTERING A COMPANY INTO FOREIGN MARKETS AND INTERNATIONAL MARKETING STRATEGIES
4. PROJECT MANAGEMENT STRATEGY SUPPORTS COMPETITIVE STRATEGY
5. Rules and procedures for developing strategies Characteristics of strategies
6. NETWORK MARKETING STRATEGIES: A FUNDAMENTAL DIFFERENCE FROM CORRESPONDING STRATEGIES EXISTING IN TRADITIONAL BUSINESS

Marketing Goal- profit maximization.

Typical application conditions:

• buyers- attracted by massive promising advertising; price-insensitive target market segment; innovators or snobs who want to own the latest or trendiest product;
• product- a fundamentally new product that does not have a basis for comparison, or a product of high demand, inelastic demand, a patented product, a product of high and constantly increasing (in order to protect production from competitors) quality, with a short life cycle;
• firm- is known and has an image of high quality or is unknown and conducts an intensive sales promotion campaign at the time of product launch; has competitors who can repeat the product’s life cycle, which will make it difficult to return the investment; the production process has not been developed and costs may exceed the expected level, provided that demand is difficult to estimate and it is risky to forecast market expansion when prices fall; the company does not have the necessary working capital for a large-scale launch of a new product and selling at a high price will allow them to be obtained.

Strategy Advantage- allows you to quickly reimburse marketing expenses and free up capital; if the market “accepts” a product at a high price, the prospects for the product are good: it is easier to reduce the price than to increase it.

Lack of Strategy- a high price attracts competitors, not giving the company time to gain a foothold in the market.

Example. The Odintsovo confectionery factory “Korkunov” released its first products only 8 years ago, but has already managed to take a worthy position in the chocolate candy market against the backdrop of such eminent competitors as Nestle and Red October. There are several reasons for this success. To begin with, the company was very lucky with the timing of its entry into the market. Before the August crisis of 1998, the domestic niche of chocolates that Korkunov claimed was occupied by foreign companies. But, frightened by the crisis, they left the Russian market. Korkunov’s products turned out to be the only ones in the expensive segment. In addition, there were no registered brands on the Russian market. The inscription “Korkunov” on the boxes of chocolates sharply distinguished Odintsovo’s products from the “assortment” of different factories. It was given the image of a non-mass product.

1.2. “Penetration price” strategy - a significant reduction in prices for goods

Marketing Goal- capturing the mass market.

Typical application conditions:

• buyer- mass with low or average income, price sensitive, demand for quality is inelastic;
• product- wide consumption, recognizable, without substitutes (conditions that provide the possibility of further price increases);
• firm- having production facilities capable of satisfying increased (due to low prices) demand, a powerful company with experience and the ability to cope with the problem of rising prices.

Strategy Advantage- reduces the attractiveness of the market for competitors, thereby giving the company an advantage in time to gain a foothold in the market.

Lack of Strategy- there is a serious problem of further increasing prices while maintaining the size of the captured market.

Example. The main principle of the French retail operator Auchan when introducing it to the market is that Auchan should be associated in the minds of the consumer with the best prices. In France, the slogan “Auchan brings down prices” was used, in Russia - “A blow to prices”. The company enters the market with consistently low prices. This principle is unshakable and is not subject to any influence. Prices attract many buyers, which, in turn, ensure high turnover rates and large volumes, due to which bulk purchases are carried out with appropriate discounts and overhead costs are reduced. Prices are falling as a result. The speed of trade turnover allows, even when setting low markups, to receive enough to recoup investments and accumulate profits. The fact that traders take on part of the production functions themselves also helps save on intermediaries: Auchan has its own bakery and salad preparation workshop.

Varieties:“crowding out price” is such a low price that excludes the entry of competitors into the market.

1.3. The strategy of “average market prices” - release of new products at the industry average price

Marketing Goal

Typical application conditions:

• buyer- segment of the target market with an average income, sensitive to price;
• product- wide consumption, standardized, with a normal life cycle;
• firm- has industry average production capacity.

Strategy Advantage- relatively calm competitive situation.

Lack of Strategy- difficult identification of goods.

Example. OJSC Samara Fat Plant, having launched new types of margarine on the market several years ago, such as Domashny, Samara Cream, Rosinka, set the average market price for them. It is aimed at the middle-income segment of buyers.

2. PRICE CHANGE STRATEGIES

After the initial prices (set for new products) have been in effect for a long time, it becomes necessary to change them due to changes in market conditions, the stage of the life cycle, or for other reasons.

2.1. The strategy of “stable prices” - unchanged regardless of any change in market circumstances

Marketing Goal- use of the existing situation.

Typical application conditions:

• buyer- a regular and respectable, somewhat conservative client, for whom consistency of prices is important;
• product- prestigious, expensive;
• firm- works in an industry in which frequent and sharp price increases are traditionally considered “indecent”.

Strategy Advantage- high relative profit (per unit of goods).

Lack of Strategy- the company must have a constant reserve to reduce costs, while maintaining the same level of quality if possible.

Example. The American cosmetics company "Clinique" in the Russian market is focused on high-income, respectable customers, for whom it is important not only and not so much the quality of the product, but its price, because... In their circle, using the products of this company is an attribute of wealth and success. Therefore, the company has set a relatively high price for the product it produces and strives to keep it at that level.

2.2. “Rolling falling price” or “exhaustion” strategy - a stepwise reduction in prices after saturation of the initially selected segment

Marketing Goal- expansion or capture of the market.

Typical application conditions:

• buyer- mass with average income, “imitator”;
• product- particularly fashionable or used by opinion leaders;
• firm- has the ability to increase production volume and frequent changes in technology.

Strategy Advantage- the company can achieve periodic expansion of the sales market at the expense of buyers with increasingly lower income levels and a corresponding increase in sales volume.

2.3. “Penetrating price growth” strategy - increasing prices after implementing the penetration price strategy

Marketing Goal- use of the existing situation, maintaining the gained market share.

Typical application conditions:

• buyer- mass, constant (follower of the brand);
• product- recognizable, there are no substitutes;
• firm- powerful, has experienced marketers.

Lack of Strategy- difficulties in raising prices after a low level.

Example. Several years ago, the Ravioli concern, when releasing a new variety of Raviollo cutlets onto the market, offered them to customers at a gift price. “We are not saying that they are tasty, but we suggest you see for yourself. The gift price is not a sale, but an opportunity to try the product at a fixed price,” the advertising poster read. At the same time, the sale of cutlets at this price was limited: no more than two packs were given out.

3. STRATEGIES FOR PRODUCT AND CONSUMER PRICE DIFFERENTIATION

There are several pricing strategies that use product and consumer differentiation as a basis for decision-making.

3.1. Strategy for differentiation of prices for interrelated goods

Using a wide range of prices for substitutes, complementary and component products. Marketing purpose This strategy is to encourage consumers to consume.

Typical conditions for applying the strategy:

• buyer- with average or high incomes;
• product- interconnected consumer goods;
• firm- working with a wide range of products.

Advantage of the strategy is the ability to optimize the product portfolio.

There are variants of the strategy of “price differentiation for interrelated goods”:

a) the high price for the most popular product (bait, image product) compensates for the increase in costs for the variety of assortment and the use of low prices for cheap or new goods (used when selling clothing, cosmetics, sweets, souvenirs):

Example. Bestsellers with an annual circulation of 1 to 1.5 million appear on the market only two or three times a year. Thanks to them, the total sales volume increases by 10% in the first months. Such a bestseller was a book about the adventures of Harry Potter. Bestsellers are an unconditional lure product on the book market.

b) the low price of the main product of the range is compensated by inflated prices of complementary goods:

Example. Today, most men prefer to use shaving machines rather than an electric razor. Thus, in St. Petersburg, only 370 thousand representatives of the stronger sex shave with an electric razor, and 930 thousand men use a razor. The fact that shaving machines are so popular is skillfully exploited by their manufacturers. The machines themselves are usually relatively cheap. But the buyer who purchased the machine is forced to buy blades compatible with it at an inflated price. For example, at the time of sale of the Gillette Mach3 Turbo machine at a wholesale price of 206 rubles, the cost of 2 Mach3 Turbo shaving cassettes was 133 rubles.

c) release of several versions of the product for segments with different elasticity:

Example. Tariffs for air tickets are highly differentiated. For example, there is a group of normal tariffs (which do not impose any restrictions on transportation). It is divided into First, Business class and full annual economy class fares. Tickets of these fares have their own specifics: they, as a rule, have no restrictions on dates or validity periods, are fully refundable and can be freely changed dates and routes.

d) bundling complementary or independent goods into a set at a preferential price (lower than the selling prices of individual goods):

• Voluntary bundling: purchasing a perfume gift set will cost less than purchasing all its components separately.
• Forced binding: when selling an aircraft, package pricing is used, taking into account prices for engineering and personnel training.

3.2. Price Line Strategy

Using sharp price differentiation for assorted types of goods. Marketing goal of the strategy- creating a buyer’s perception of the fundamental difference in quality, taking into account the thresholds of their price sensitivity.

Typical application conditions:

• buyer- has a high price elasticity of demand;
• product- has an assortment and quality that is difficult for the consumer to unambiguously determine;
• firm- has an experienced marketer and the ability to conduct expensive research.

Strategy Advantage- optimization of the product portfolio.

Lack of Strategy- it is difficult to determine the psychological price barrier.

Psychological price barriers determine the range of “price confidence.” Setting prices at a low threshold raises doubts about the qualitative imperfection of the product; at a high limit, it raises doubts about the necessity of purchasing. As a rule, a company works with goods of a certain level of quality (for example, average) in an appropriate price range. The marketer must find price intervals in this range within which demand does not change when prices change (psychological inelasticity of demand with respect to price).

3.3. “Price discrimination” strategy

Selling the same product to different customers at different prices or providing price benefits to some customers. A prerequisite for application is the impossibility of moving goods freely or without additional costs from a “cheap” market to an “expensive” one (geographical, social isolation).

Typical application conditions:

• buyer- a regular customer, easily identified, the elasticity of demand varies significantly among different consumers;
• product- unique, without equivalent substitutes;
• firm- a real or imaginary (in the minds of consumers) monopolist.

Strategy Advantage- optimization of demand in real conditions.

Varieties of the “price discrimination” strategy: a) benefits for regular partners, franchisees (for the purpose of introduction into intermediary structures)

Example. The 1C company has three categories of intermediaries: dealers, permanent partners (franchisees) and distributors. They are provided with discriminatory discounts from the recommended end-user price of 50%, 55% and 60% respectively.

b) different prices depending on the time of use, type of consumer (Segment pricing)

Example. Mosenergo OJSC provides electricity to individual users and organizations at different prices.

To successfully implement this pricing strategy, manufacturers must provide the ability to cost-effectively change product design and construction to meet the needs of different consumer groups.

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