Question 135 - CPIM-Part-2 discussion

Product price is most effective in influencing demand in the introduction phase of the product life cycle. The product life cycle is a concept that describes the stages that a product goes through from its development to its decline. The introduction phase is the first stage, when the product is launched into the market and consumers are made aware of its existence and benefits. In this phase, product price can have a significant impact on the demand for the product, depending on the following factors:

The degree of product innovation: If the product is highly innovative and offers a unique value proposition to customers, it may have a high price elasticity of demand, meaning that customers are willing to pay a high price for it regardless of the availability of substitutes or competitors1.This is often the case for products that create a new market or category, such as the iPhone or the Kindle2.On the other hand, if the product is not very innovative and offers a similar value proposition to existing products, it may have a low price elasticity of demand, meaning that customers are sensitive to price changes and will switch to cheaper alternatives or competitors if the price is too high1.This is often the case for products that enter an existing market or category, such as generic drugs or copycat products3.

The degree of market competition: If the product faces little or no competition in the market, it may have more pricing power and flexibility, meaning that it can charge a high price and still generate high demand4.This is often the case for products that have a strong brand image, a loyal customer base, or a patent protection5.On the other hand, if the product faces high competition in the market, it may have less pricing power and flexibility, meaning that it has to charge a low price or offer discounts and promotions to attract and retain customers4. This is often the case for products that have a weak brand image, a low customer loyalty, or a short product life cycle.

Therefore, product price can be an effective tool to influence demand in the introduction phase of the product life cycle, depending on how innovative and competitive the product is. A high price can signal quality, exclusivity, and differentiation, while a low price can signal affordability, accessibility, and penetration.