Life cycle pricing is the life cycle-related price differentiation of a product.
The life cycle concept is a widely used approach to predict sales development over time. In most cases an S-shaped development of sales is assumed, but no generality can be assumed, as sales development is influenced by many external factors such as the degree of innovation, complexity or the competitive environment. The challenge of pricing is to set optimal prices over time. Price elasticity often changes significantly over time. The price is increasingly coming to the fore as a buying argument for the customer. Many times, a company achieves the highest margins immediately after the product launch, as seen for example with the introduction of a new generation of smartphones. Over time, the technology built into smartphones becomes obsolete and competitors bring similar products to the market, which reduces the customer’s willingness to pay. Especially for products in the mature stage, major changes in sales volume can often only be observed as a result of price reductions.