The lifecycle of a product is ever shortening in eCommerce, whereby successor products are appearing ever faster. Particularly in sectors such as consumer electronics, IT and pharmacy and medical devices – in short, innovation-intensive sectors – models supercede one another at short time intervals. Price management determines here how long a product survives. One major source of error is the price setting of an older product when a successor model appears on sale.
A lower price for the former model will actually damage the successor product
Many manufacturers follow their initial instinct when the new product finally appears on the market: They offer the former product at a significantly lower price. It is thus to disappear quickly from the market. In fact, this strategy hurts the new, successor product.
The consequences of an imprudent pricing policy can bring lasting disadvantages to the new product: The price of the old product, at worst, is just too low. As a result, the newly released item seems too expensive to customers and they opt instead for the reduced former model. This in turn damages sales of the freshly introduced product.
To avoid this effect, Baker, Marn and Zawada recommend increasing the price of the older product. The price of the predecessor serves for customers as a reference point towards the new product and suggests to them its value. Additionally, manufacturers in this way increase the margin for the former model. The price of the predecessor product should only be minimally below that of the new product. A careful price tuning based on internal and external factors increases the likelihood of a long-lived product.
What you can do: A precise balancing of several factors promises success for replaced as well as successor products
As soon as a product becomes consolidated on the market, manufacturers rarely alter the price. You should calculate the price of your product based on the following points:
- Context in your own product portfolio,
- Pricing strategy of similar products among competitors,
- Perception of the product by customers,
- Price adaptation for special sale events (Christmas business, Cyber Monday, etc.).
Determine from the outset a pricing strategy for the successor product in light of these criteria. At best, you would do this already at the development stage of the new product and take into account the price of the predecessor product. A well thought-out price management is the key to success here.
As we note in our Trends for 2017, the steadily growing information volumes can hardly be managed manually for targeted price analysis. This is why automatic tools such as the blackbee Business Intelligence software are essential for retailers in developing and implementing a successful pricing strategy. From the resulting key data, you secure a competitive advantage for yourself and also increase the longevity of your product on the market.
Are you interested in further tips on price monitoring and price optimisation on the Internet? Just send us a message – we look forward to meeting you!