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Lecture 14 Product Lifecycle Pricing, Pricing of New Products, and Pricing in Economic Downturns

Lecture 14 Product Lifecycle Pricing, Pricing of New Products, and Pricing in Economic Downturns. Sales and Profits ($). Sales. Profits. Time. Product Development Stage. Introduction. Growth. Maturity. Decline. Sales and Profits Over the Product’s Life From Inception to Demise.

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Lecture 14 Product Lifecycle Pricing, Pricing of New Products, and Pricing in Economic Downturns

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  1. Lecture 14 Product Lifecycle Pricing, Pricing of New Products, and Pricing in Economic Downturns

  2. Sales and Profits ($) Sales Profits Time Product Development Stage Introduction Growth Maturity Decline Sales and Profits Over the Product’s Life From Inception to Demise Losses/ Investments ($) Market penetration grows Market penetration stabilizes Market penetration declines • How do we price along product life cycle? Sales force training, sales support materials, advertising

  3. Pricing new product • Price according to EVC (see lecture on EVC) • Use promotion to induce purchase (see lecture on price promotion) • Adopt skimming pricing with discounts to encourage trials • Sometimes, it is optimal to start with penetration pricing if current sales increase future sales. Conditions • “network effect” • Nintendo • Intuit introduced Quicken at $0 • image • 1989 Toyota introduce Lexus • cross-sell • Computer Associates offer free Simple-Money • Universities get attractive deals on hardware and software 51680 Price of Lexus 35000 1989 1995

  4. How current price affects future price? • Customer • Price low to generate future sales • Price and promotion affect consumer perception • Cost • Pricing to get economy of scale • Experience Curve Pricing • Competition • Current price affects competitors’ capacity planning • price of tire dropped 25% in 1980s as capacity utilization slipped to 76% • price of memory chips dropped from $38 to $8.50 • Federated Industries • Current price affects competitors’ entry decision • International Pen Corporation high margin invited 100 competitors • Federated Industries Today’s pricing decision inevitably affect how tomorrow’s cost, customer and competition and hence pricing decision will be made

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