Pricing and the product life cycle

A product's position in the product life cycle influences the pricing strategy a business chooses. Each stage changes demand, competition and how much customers are willing to pay, so the strategy should be reviewed as the product moves through the cycle.

Introduction and growth

At introduction, you might use price skimming if the product is innovative and demand from early customers is high. A high launch price earns more revenue per sale before rivals copy the idea. Alternatively, penetration pricing sets a low price to attract customers quickly and build market share. For example, a new app-controlled plant-watering device could launch at £85 to target keen gardeners, then fall later. A new budget online homework club could instead start at £3 a month to win users quickly.

In growth, sales rise but competitors may enter the market. Your price may need adjusting downwards, or keeping in line with rivals, so customers do not switch. If your product has a strong feature, you may hold a higher price.

Maturity and decline

In maturity, sales growth slows and competition is strong. Competitive pricing sets a price close to rivals, while psychological pricing makes a price appear lower than it is, often by ending just below a round figure. Both can help defend market share.

In decline, demand falls. Lower prices can clear remaining stock and attract customers who are looking for a bargain before the product is withdrawn. The lower price may cut profit per unit, but selling unsold stock is better than leaving it in storage.