Product Life Cycle (PLC) shows the stages of a new product going through in the market place. In general, a product goes through introduction, growth, maturity and decline. The application of the four stages of PLC can assist firms to plan marketing mix decisions. Hence, price setting of a particular product can be influenced by its PLC over the four stages.
For mass market with high competition and a new brand of known product, price penetration will be practised at the introduction stage where sales are often low. It is a pricing strategy that price is set relatively low at the launch of a new product. This is because common products have many substitutes and consumers are sensitive to price change. Thus, low price can discourage competition with the substitutes so that firms can capture large market share quickly and penetrate deeply into the market. It is effective in creating market awareness among similar products.
However, price skimming is practised for niche market with low competition and innovative products at the introduction stage. It is a pricing strategy that price is set at high at the launch of a new unique product. It is to cover expensive R&D costs by making relatively high short-term profits and reflect high quality image. Besides, high profit margin is necessary to compensate low demand. Consumers are not very sensitive to price change and there is less competition in the short term. Thus, the price for an unproved new innovative product is set at high at the introduction stage for as long as it can hold its strong position.
At growth stage where sales are growing rapidly, the previous pricing strategies applied at the introduction stage will still be practised to strengthen the respective objectives. Hence, price penetration will still be practised for common product. Price will continue to be set at low to further expand market share as...