Companies that master pricing do so across the three phases of product’s life cycle – launch, midlife, and late life – and make decisions in the context of adjacent products in their portfolios. In this way, these companies ensure that they reap the full rewards of their innovations by creating price advantages for themselves, according to McKinsey & Company report.
Companies that capture price advantages across the life cycle of their products have several distinct characteristics. They continually strive to think across life cycle stages, building all their questions and analyses into that framework. Beginning with high-level plan for managing product to the end of its cycle, these companies refine their approach by constantly monitoring market conditions, the moves of competitors, internal operational changes, and customer perceptions. Managers regularly scan internally and externally for information about potential trigger events. Their level of energy and activity – the ability to undertake fast, deep customer research or to produce insightful analyses on multitude of variables – is higher than that of most companies.
Businesses can take number of steps to manage and price their products in this way:
• Examine life cycle pricing up front. The pricing of new products at savvy companies is not reactive, ad-hoc process but core competency undertaken at early stages of product development.
• Maintain longitudinal view. Organisations that capture the price advantage escape the common “launch and forget” pricing pitfall once new products hit the market.
• Find ways to increase life cycle value. Companies that manage life cycle pricing well are dynamic and adaptive. Often these qualities call for level of cross-functional coordination that transcends the pricing function: product development, marketing, competitive intelligence, sales, and operations may all be involved.
For step-by-step example of how to use pricing strategy to manage product portfolio, explore the accompanying interactive exhibit, “Pricing new products in portfolio” from McKinsey & Company.
