How Product Life Cycle Affects Price Sensitivity
In this sales training article we look at the different stages of the product life cycle. We discuss some of the key influencers affecting price policy decisions. This is important information for those in a sales or business development role.
The experience your customers have of your product has a decisive influence on their price sensitivity. Throughout the product life cycle, the inexperienced client will inevitably become a product specialist. Th product life cycle is typically composed of four phases. These are:
Phase 1: Launching new products. Here, as well as reliable new technology, customers are expecting a high levele of technical advice. First buys in this initial phase are accompanied by a high risk. Buyers are therefore willing to pay a high price, for a product with well-known quality and just as good accompanying service.
Phase 2: First experiences. After the buyer's initial experience of a new technical product, the main factor in the decision to buy is product performance. An appropriate advisory service is therefore in great demand.
Phase 3: Latecomers. Clients who decide to buy a long time after the initial product launch are initially influenced by the first imitation products. Such imitation products have few research and development costs and are therefore usually offered at a cheaper price. Despite their inexperience, latecomers tend to have a higher price awareness.
Phase 4: Professional clients. The price structure of the entire branch is now becoming exposed to increasing competitive and buyer pressure. What is still required is standard quality at exceptionally reasonable prices.
The following characteristics should alert you to the fact that your clients' price awareness is improving:
1. Change of decision-makers: When organisations are thinking of buying new products, they usually form a decision-making team which is composed of members of company management and technicians. With increasing experience on the customer's side and a growing standardisation of company offers, the decision to purchasey is often delegated to the buying department. An external indication of this development is often the desire for formal offers and tenders.
You can counter these tendencies by changing the technical nature of your products, thereby bringing the "old decision-makers" back into the picture. Every innovation arouses the intense interest of company management and technicians, which in turn means that the buying teamt loses its position as decision-maker.
2. Changing the decision-making process: As we have just mentioned, the decision to buy innovative products is usually left in the hands of large committees - the buying centres. These committees usually have long discussions before they reach any decision. Experienced clients, on the other hand, make routine decisions quickly.
3. Changing the price-performance orientation: In the earlier phases of the product life cycle, buyers want to buy a certain innovative product in order to improve their company's performance and competitiveness. They don't mind paying a higher price for a product which offers them a good solution to their problems. Experienced product users, on the other hand, demand good quality at a low price.
Due to their excellent, mature relationship with these old customers, many suppliers tend to overlook this change in the price-performance orientation. They cannot imagine that one of their old customers, who have previously always been perfectly satisfied, now suddenly want to discuss the price. Even large corporations have had to cope with this, since many "unproblematic friends" have now become price-sensitive buyers.
In summary, you will only be able to put your price policy decisions on a solid footing once you have made the right assessment of your clients' experience. As price becomes increasingly central in the decision to buy services offered by suppliers, such as an advisory service, installation, training or technical client care, can lose importance. Experienced customers often "break down" systems into their individual component parts and then reconstruct the system they want out of these cheaper individual components, further adding to price sensitivity. Good sales training is required to sell benefits to more experienced clients and so maintain price and profitability.
About the Author
Richard Stone is a Director for Spearhead Training Limited that runs management and sales training courses that improve business performance. You can view more articles at => http://www.spearhead-training.co.uk
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