 So, we will continue our discussion on product pricing in this session also. So, if you remember last time, last session we discussed about the product pricing and what is the need of product pricing when the firm generally go for a pricing strategy all together, whether about launching a new product, whether there is a improvement in the, improvement in the existing product and also getting into a strategy where getting into a different market altogether or different market segment. So, in that context we discuss about the cost based pricing, typically the cost plus pricing and the markup pricing. Then that on the basis of the cost, what is the whether it is a full cost, whether it is the variable cost. Then we discuss about the target price. Then we discuss about the pricing on the base of competition. Then we discuss it is on the basis of the firm's objective. If the firm's objective is profit maximization, what strategy to be followed and if the firm's objective is for the sales maximization, what strategy to be followed. So, on that basis we discuss three types of product pricing in the last session. One on the basis of the goal of the firm or the objective of the firm. Second is on the basis of the competition and third is on the basis of the cost. So, today we will continue our discussion on product pricing and the first type of product pricing we are going to discuss today is product life cycle based pricing. Here the pricing is based on the product life. So, typically if you look at the product life is divided into four stages. The first stage introduction, second stage is growth, third stage is maturity and fourth stage is decline. And generally the product faces different demand pattern and the competition level under the different stages. So, charging uniform price at the different stages generally gives less optimum revenue to the firm because each stages they have a different demand pattern and the different kind of competition under the different stages. So, that is the reason if you are charging or if the firm is charging the uniform price the possibility is that it will give us less optimum revenue. So, it is preferable or it is advisable that there should be high price at the introduction stage and low price in the decline phase. So, before going into the different techniques of the product life or different strategy when the product life based pricing, we will understand what is the nature of all these four stages of the product life like starting from introduction to the growth to the maturity to the decline. So, we will first understand this four stages of the product life cycle and then we will see how the sales generally increases or decreases in all these four stages of production. So, to start with we will just draw a graph to understand this four stages of production. So, this is our sales revenue curve, this is the sales revenue curve, this is the introduction stage, this is the introduction stage, then we will get the growth stage, then we will get the maturity stage and then we will get the maturity, then we will get the saturation and finally, we will get the decline. So, when it comes to a product life cycle, the first stage is introduction and if you look at here generally the product is introduced and the sales increases because it is a new product in the market, then the sales pick up because consumer they were aware of this product and finally, the growth happens in this stage, then the product become generic in the case of maturity stage and shrink the increase in the sales force because this is considered to be the generic, then people they become saturated at this stage and after this decline continue. So, if you look at generally always the high price is charged in case of introduction stage and why high price is charged because the product is new, people they are ready to pay for it and here the sales force here the priority is to it is reaching to the consumer and there they have to increase the sales with the high price or increase the sales revenue with the high price. But in the case of growth and maturity generally they charge a low price because the product has already reached to a stage where people they know about this product and that is why this low price is being charged in case of the growth and maturity and also that continue in case of the saturation and decline stage. So, rather than saying low we can say this is the value for may be this the moderate the moderate price this is the value for this product in case of growth and maturity. So, generally if you take an example of suppose the television when this LED LCD television came initially it was such a high price and who are the customer segment or who are the group of consumer they are going to buy the LCD TV, who attach high value to it, who consider this is a status symbol and they are less bother about that whatever the price is being charged because they are in that customer segment whatever new in the market they should use it and they are not responsive to the price whatever whether it is high price or whether it is low price. So, in that case generally high price is charged in the introduction stage, but later on if we look at now the price has come down for LCD TV now it is in the growth and if we look at it is also matured because it is now from LCD we have moved into the LED TV and now at this stage the typical that color TV television or may be the so called flat television that has already reached maturity or the saturation or we can say the typical black and white they have already reached the saturation or there in the decline phase. But in this case that flat TV or the color TV is still in the maturity those who cannot afford the LCD LED TV they are just taking the flat screen TV because it is in the maturity stage and the price is moderate. So, if you look at now you can bring the LED TV here which is high price, LCD TV here which is has already reached the growth stage that is the moderate price, maturity again it is the price considered to be the this to produce its low price and then again the saturation typically and decline for the black and white TV. So, practically where the price is almost in the bottom side. So, on that basis on the product like cycle based pricing there are three kind of pricing technique the first one is price skimming and what is price skimming under this price skimming producer charges a very high price in the beginning to skim the market and earn super margin on sale. So, if you remember your first degree price discrimination the monopolist try to identify the consumer group who is ready to pay more and generally charge a higher price to them. So, in this case also the producer try to skim the market and earn the super margin on the sales and here the markup cost is normally high the margin whatever that is normally high. This is the typical example of a first degree price discrimination and high price at the time of introduction and low price at the time of the maturity. Now, here we can take the example of may be here we can take the example of suppose the every Friday we get a new movie get released and to the consumer group. Now, though those who watches the movie on the first day first show they pay higher price and those who are watching that movie at a later time when the demand is saturated then they give it they generally they generally pay lower price. So, the first day first show when you are trying to watch a movie your focus is not on the price your focus is that because you want to watch the movie. And here the producer try to skim the market and they exercise the first degree price discrimination and they charges a higher price because here the consumer they are not ready for or they are not responsive for the price rather they are responsive for the product. So, in this case the producer will charge a higher price and in this case there will be a price differential who on the basis of the time period who is watching the movie and the first instance the first day first show and who is watching the movie at a later stage because the first day first show consumer group they are paying a higher price as compared to the people those who are watching at a later day. So, we will just take a graphical explanation to understand this both the cases this first day first show and watching the movie at a later stage and we will see how on the basis of the demand curve the consumer is paying a higher price in the first case and they are paying a lower price in the second case. So, we have two demand curve D 1 D 1 then we have D 2 D 2 this is P 1 P 2. So, the demand curve D 1 D 1 is demand curve for those consumer who must watch the show on the first day irrespective of the price and D 1 D 1 is the demand curve for the rest of the consumer who generally watches the movie after the craze is gone or may be after the demand is comes to a moderate level. So, on that basis we get two demand curve the first demand curve is D 1 D 1 that is for those group of consumer who must watch the movie on the very first day D 1 D 1 is for the demand curve for the rest of the consumer. So, P 1 will be charged for consumer who is watching the movie on the first day and P 2 will be charged for this group of consumer who is who is who are watching the movie at a later day. So, in the first case this is the revenue and second case this is the revenue. So, revenue in the first case is O P 1 O P 1 or P 1 O Q 1 A this is the revenue when the price is P 1 and in the second case when the price is P 2 this is the revenue that is O P 2 B Q 2. So, now if you analyze this from the producer point of view in both these cases the producer is getting the revenue whether the price is P 1 or whether the price is P 2, but when he is charging the revenue model is different in both these cases. In the first case it is high price and second case it is low price. If we alter the pricing technique may be he is not maximizing revenue because initially the group of consumer who will be watching on the first day the Q is less. If Q is less and if we charging a low price he is not maximizing the revenue and second case if he is going to charge higher price at a later date also if the movie is released and after may be 2 weeks, 3 weeks still he is charging a high price still the Q is going to be less and in this case again the maximization of revenue is not possible. So, the point here is when consumer is not responsive to price that time generally the higher price is charged from the by the producer and if the responsive to price generally the lower price is being charged and that is the reason this is the strategy under the price coming in the time of introduction generally high price is being followed and in the later date generally the low price is being followed that is typically in the maturity saturation or the decline phase of the product. So, here the basis is product life cycle on the basis of the different stage the prices are going to be charged. Then the second category here is product bundling and here if you look at two or more products bundled together for a single price. So, here what is the strategy? The strategy is used to propagate new product as well as selling a product during the decline phase. So, when you buy something you find there is a other product free with that product. So, this is the typical example of the product bundling and why the other product is free either other product is new that is why it should reach to the consumer and that is why that comes as a free what be the other product or the product has already reached the decline phase and if the product has already reached the decline phase then in order to again revive the sales of the product that generally comes as a free. So, that people again get back to the product and they buy the product also in the individual sense. So, in this case product bundling generally two or more product is bundled together for a single price and in this case the motivation is to either to do a marketing for a new product or to help in reviving a product who is at the decline phase. The typical examples here if you will find this package trip they will say in this ticket price will take care of your stay will take care of your sight seeing and also it is a part of your travel expenses or typically the travel package if you look at now there is a option that if you want food during your travel that is added and they will charge a price like initially when this AC class was introduced in the train if you have to pay a price to get the bedding, but later on if you look at prices increase manifold, but at least this bedding part is included in the ticket fare. Similarly, if you are travelling by Rajasthani generally the food is free because that food price is added in your ticket fare in case of the Rajasthani expenses. Similarly, suppose if you are travelling if you are staying in a hotel many of this hotel they gives the breakfast as free as complimentary, but it is not complimentary it is not entirely free the charges for the breakfast is considered under the tariff charges for the room and you get this as the free. So, in this case the product is bundled together. So, if you are staying in a hotel you are not going anywhere out for the breakfast you are taking generally breakfast in that hotel itself because it is added together to your room tariff. So, product bundling is generally a strategy used to either to launch a new product or to revive a product who is already in the decline phase and here we get two products in one single price. So, that generally gives as a feel good factor also for the product for the consumer because they are getting two products in one single price. Then the third kind of product life cycle based pricing is perceived value pricing. Now, what is perceived value? Perceived value is the consumer the different consumer group they assign the value to the product on the basis that what kind of what kind of perceived benefit they are getting out of it. So, the value of the good for different consumer depends upon their perception of utility of that good. So, if it is for one consumer group may be they typical product gives a higher value. So, they usually give a higher value to the product, but for the other consumer group may be the perception of utility is less and that is why they gives a low value to the product. So, if you look at here in this case this is a psychological pricing because here the producer identify what is the psychology of the consumer with respect to the value of the product or the utility of the product and then on that basis they have to charge a price. So, small sellers identify the perceived value on the basis of the knowledge of the market forces and change in the price which aims taking away the consumer surplus. So, here they try to analyze how much this consumer is ready to pay for this specific product and on that basis they generally try to charge a higher price. So, that they can take away the consumer surplus because if the consumer is considering that this is a high value product or the perceived benefit is many is ready to pay a higher price. So, they will charge a higher price from that typical consumer and again they will analyze what is the for the same product what is the perceived value from the other consumer and on that basis generally they again charges a price on the basis of the perceived value of the typical consumer. So, here also the basic aim is to take away the consumer surplus. Now, to now to take the consumer surplus from the consumer what is needed the seller has to understand the perceived value of the consumer. So, if the knowledge about that what the consumer perceive about the value of the product that is the prerequisite to charge a price which will give us the which will give the consumer surplus to the seller. So, here if you look at the difficulty is also to understand what is the perceived value of consumer regarding a specific product. Sellers may try to influence perceived value through the brand awareness and also the emphasis on the quality. So, sometimes sellers they try to influence the people this is the product it is very high value product and there is generally they create a brand awareness because the consumer in that way the consumer will try to give a high value for it and if they are giving a high value for it generally they can charge a higher price for it. Typically if you look at the example or economy and premium segment for different product if you will find one comes under the economy segment other comes under the premium segment. So, always the high value if it is a premium segment high value is being charged and if it is comes under the economy segment generally the low price is being charged. So, if you take the example of typically TANISC they are known as they are there from the Tata group they are known as they are there quality of the gold what they give or their specific design what is not being offered in the general market. So, they create a brand that they are different from the others and on that way if you find if you talk to the people they will always say that it is TANISC they charge a high making charges, but their product is good their design is good. So, the endos for the making charge with that their design is good or their product is good. Similarly, it is Philips or you take the Parker pen generally they creates the hype in the quality and that quality the hype in the quality may be through the creating a brand awareness through the celebrity through the quality or through the different media generally they create a hype about it and when it comes to buying that product they the perceived value is very high from this for this product and that is why they charge a higher price. When you go for shopping whether it is TANISC whether it is Philips whether it is Parker if high price is being charged you say the product has to be good because this is from Philips the design has to be good because this is from TANISC or this pen has to be good because this is Parker and that is why the consumer ready to pay higher price and this is how the typically the seller they take care with the consumer surplus from the consumers by charging a high price. Then the other category in case of product life cycle price pricing is value pricing and what is value pricing? Value pricing here sellers try to create a high value of the product, but keep the price low. They will say this is a high value product, but generally keeps the price low and here seller allows some consumer surplus to the buyers. It creates a high value of the product with charges a low price. So, if you look at there are few store in the market and throughout the year you have some discount on it whether it is a second shop it is a it is a factory outlet or in general also few brands if you look at every Wednesday you get some discount every Friday you get some discount every festive season you get the discount. So, that is that is typically the value pricing. The consumer knows that the product is of high value, but he is getting a discount. So, the pricing is generally given at a higher note, but every time some discount is given keeping it is not that the margin is not getting by the sellers they are getting the margin, but after giving discount also they are giving a profit or a margin whatever the price they are charging during the discount. So, generally here seller creates a high value of product and charges a low price. So, typically if you go to the garment some of the garment shop every time you find some offer is going on. So, they create a high that this is a very high value product, but they are giving you some discount and typically this is known as the value pricing. Then one more category is loss leader pricing and what is loss leader pricing? Here the multiproduct firm sell one product at a low price and compensate the loss by the other product. So, combining together whatever the prices of the two products that has to be same, but when they are offering it they always charges a lower price, but they compensate the loss by charging the prices of the other product. Typically it happens in case of the complementary product and how it happens if you have seen typically HP does that and what HP does that through this loss leader pricing? They offer the printer at a lower price and for all of their printers the cartridge is very specific and the cartridge is very highly priced. So, in this case even if they are offering the printer is at a lower price since the cartridge is high value the value of the printer and the cartridge is covered through combining the price of the printer and the cartridge. So, generally they are offering the product at a low price, but whatever the requirement the complementary products that is on a high price and that is very specific and the consumer cannot try to substitute whatever the complementary product. And in that case the prices of the high value product and the low value product both get covered in the combined price. However, the success of this strategy is always dependent on the combination of good which are complementary in nature or the company has to produce also the complementary goods then only they can do the practice this loss leader pricing.