Efficient Business Structuring and Management

Introduction

Every year, thousands of businesses fail due to over- or underpricing their products and services or simply not understanding Moore’s Law and the digital divide, which leads them to fail in any attempts of expanding their business to an international level.

Furthermore, understanding how to increase customer satisfaction and thus retention by enhancing customer value is of high importance.

What is the Product Life Cycle

There are many different models to be found that describe the product life cycle, some consisting of four, and others of five or six stages, and obviously the real world is much more complex. For this post, I will keep it pretty simple and basic.

Product Life Cycle Stages:

1. Introduction

2. Growth

3. Maturity

4. Decline

Effect on Prices

Introduction

During the introduction stage of a product, the price is usually highest. This strategy has the goal of recovering development costs as quickly as possible to start earning profit. For popular products, such as cellular phones, the target market’s demand is relatively inelastic, which allows these higher prices charged during the introduction stage. Many consumers strive to have the newest technology at all times and are willing to pay a high price to possess it.

Growth

During the growth stage, competition has entered the market increasing the available amount of a certain product and thus increasing supply. With increasing competition, prices are set to a lower stage to be competitive in the market. In addition, companies have recovered development costs for successful products and thus can start charging lower prices and still earn a high profit.