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by SS&SS

How Product Life Cycle Affects Price Sensitivity

This sales training review article discussess the different stages of the product life cycle. It also reviews some of the key influencers affecting price policy decisions that need to understood by people in a sales or business development role.

The experience your clients 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, clients are expecting a high degree of technical advice. First buys in this initial phase are accompanied by a high risk. Buyers are therefore willing, for a product with well-known quality and just as good accompanying service, to pay a high price.

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. Customers who decide to buy a long time after the initial product was 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 needed 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 companies are thinking of buying new products, they usually form a decision-making team composed of members of company management and technicians. With increasing experience on the client’s side and a growing standardisation of offers, the decision to buy 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. Each innovation arouses the interest of company management and technicians, which in turn means that the buying department 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. Altering 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 do not mind paying a high price for a product which offers them a good solution to their problems. On the other hand, experienced product users demand good quality at a low price.

Due to their good, mature relations, with these old clients 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 clients often “break down” systems into their individual component parts and then reconstruct the systems they desire out of these cheaper individual components, further adding to price sensitivity. Good sales training is needed to sell benefits to more experienced customers and so maintain price and profitability.

by pedrosimoes7

How Product Life Cycle Affects Price Sensitivity

This sales training review article discussess the different stages of the product life cycle. It also reviews some of the key influencers affecting price policy decisions that need to understood by people in a sales or business development role.

The experience your clients 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, clients are expecting a high degree of technical advice. First buys in this initial phase are accompanied by a high risk. Buyers are therefore willing, for a product with well-known quality and just as good accompanying service, to pay a high price.

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. Customers who decide to buy a long time after the initial product was 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 needed 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 companies are thinking of buying new products, they usually form a decision-making team composed of members of company management and technicians. With increasing experience on the client’s side and a growing standardisation of offers, the decision to buy 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. Each innovation arouses the interest of company management and technicians, which in turn means that the buying department 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. Altering 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 do not mind paying a high price for a product which offers them a good solution to their problems. On the other hand, experienced product users demand good quality at a low price.

Due to their good, mature relations, with these old clients 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 clients often “break down” systems into their individual component parts and then reconstruct the systems they desire out of these cheaper individual components, further adding to price sensitivity. Good sales training is needed to sell benefits to more experienced customers and so maintain price and profitability.