How Does A Firm?s Pricing Poli

Satisfactory Essays
How does a firm’s pricing policy relate to the product’s life cycle?

When a company launches a new product, it knows the product won’t last forever. However, the company does expect to earn a satisfactory profit to cover all the effort and risk that went into launching it. A firm can never accurately predict the lifetime of a product, but the lifetime involves four distinct stages. These four stages are collectively known as the Product Life Cycle (PLC).

The first stage is the introduction stage, when the product is first launched. Sales growth tend to be low as consumers are ‘introduced’ to the existence of the product. At this stage therefore, profits are negative or low because of the low sales and high distribution and promotion expenses. Much money is needed to attract distributors and build their inventories. Promotion spending is especially high to inform customers of the new product and get them to try it.
One of the biggest launches in recent history is that of the DVD player. Not only is this a new product, it’s a whole new market. Industry executives have named DVD-Video the "Medium of the Millennium" and boast that DVD-Video is the fastest growing new packaged media format launch in history with close to 5.4 million DVD-Video players shipped to retail since the format launched nationally in the U.S. in autumn 1997 (Consumer Electronics Association).

The outlook for next year is equally promising. The DVD Entertainment Group estimates that hardware shipments will double to eight million DVD-Video players in 2000. And, based on the success of the format exceeding all previous forecasts that number could be even higher. The group also estimates that the installed base will more than exceed 10 percent of US households, a benchmark of success for a consumer electronics product.
The surge in hardware sales is a positive boost for retailers. In 1999, DVD-Video hardware represented more than $1 billion in retail sales. This includes stand-alone players only and does not include DVD-ROM drives or other home theater products.
There are now nearly 70 DVD Video player models marketed under 30 different consumer electronics brands.
In only its third year in the marketplace, DVD-Video player prices have declined significantly. According to Intelect ASW, the average price sold for a DVD-Video player was $298 in November, down 30 percent from $428 at the same time last year. Some players and models are available for less than $200 making the format accessible to the mass market.
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