Pricing professional services and product life cycles: why you
probably should be increasing your price!Like living things,
products and services can be thought of as having a life-cycle.
When pricing professional services, you may want to consider
product life cycle management a number of strategies used as a
product goes through its natural lifecycle. Knowing where your
product or service is in its lifecycle will help you understand
your market and will give you a possible picture of what the future
brings. Importantly, it may give you a signal to price your product
in a position that goes with the current as opposed to going
against the grain.Case: Laser eye surgery and the product life
cycleAs an example to help understand product life cycles and
pricing decisions, what follows is an analysis of where laser eye
surgery is in its lifecycle.The position that laser eye surgery
sits in its product life cycle suggests that average prices could
be higher than they are now.Nearly 60 percent of all people in the
UK need corrective lenses, 30 percent have myopia. Whilst glasses
and contact lenses are in the Maturity stage of their product
lifecycle, laser eye surgery, like many elective surgery
procedures, remains in theIntroductory stage. There are nearly 36
million people in the UK who could benefit from laser eye surgery
surgery, but only about 100,000 actually choose this as their
option to correct their vision every year. There is evidence to
suggest that these patients will be amongst the ones that pay the
most for their laser eye surgery, and would probably pay more than
they do now.The following is the classic adopter curve that applies
to most technology diffusion: Market characteristics at the
introductory stage of the product lifecycle include: Costs are high
so profits are modest, in spite of relatively high prices Slow
sales volumes at the start Little or no competition Demand has to
be created Patients have to be prompted to try the product The
financial benefits are relatively small and underproductive at this
stage
While useful, there is no predictive value in the life cycle
concept. In other words; there is no evidence to suggest that laser
eye surgery will follow the same lifecycle of contact lenses, or
eyeglasses. In fact, the worldwide market for contact lenses
continues to grow, and the market for eyeglasses continues to grow
in the long term as a result of macro-economic trends (the ageing
population and improving economic conditions globally).Laser eye
surgery patients are all, by definition innovators and early
adopters.(the 15% of patients that are first to try any newly
introduced product). There is a vastly larger pool of potential
patients in the early majority who will make the next wave of
patients (34%) in the growth stage of laser eye surgery.The rewards
associated with the opportunity to serve innovators will not knock
forever and the door is closing day by day.Laser eye surgery
patients are innovators. In general, innovators (the first 2.5%):
Are adventuresome Interested in new ideas Have the ability to
understand and apply complex technical knowledge Possess the
ability to cope with high levels of uncertainty Take part in social
gatherings to discuss their choices Are happy to pay higher
relative prices in order to be first to receive the products
benefits
If youre an innovator or intermediary of new technologies (e.g.
you invest in the latest technology, do original research, or bring
new and innovative procedures to market) then you should be pricing
as high as your customers are willing to pay because it goes with
the current. This opportunity will not knock forever and the door
is closing day by day.Its quite possible that the deep discount
providers offering cut-rate pricing for laser eye surgery are ahead
of their time and I dont mean that in a complimentary way.Laser eye
surgery patients are early adopters. In general, early adopters
(the next 13.5%): Are more comfortable being exposed to problems,
risks and annoyances common to early-stage product testing and
deployment Are ready to pay the early adopter tax a higher price to
mitigate some of the above risks Provide considerable and candid
feedback to vendors on the problems they experienced and the
benefits they accrue Are more integrated in the local social system
Are looked to for advice from potential adopters
In the UK market, it is clear that most multiples and larger
competitors are competing for the early adopter market. These
customers will be relatively more price sensitive than the
innovators, but not as much as the early majority that will follow
them. Therefore, it makes sense for the multiples and larger
competitors to keep their prices as high as possible (but under the
innovators) in order to maximize profits while expanding market
share. Its quite possible that the budget providers offering
cut-rate pricing for laser eye surgery are ahead of their time and
I dont mean that in a complimentary way. Deep discounting goes
against the grain of the current market.Other characteristics of
innovators and early adopters Are considerably tech-savvy almost
all patients do online research before every walking into a laser
eye surgery centre Respond to information shared primarily by
people they trust (friends and family) providing substantial
evidence that social media is an important emerging channel Have a
considerable appetite for product knowledge they want to be
educated and engaged not sold to. They will happily turn up for
social events to learn more about the product from the
professionals and other early adopters Do not respond favorably to
traditional, mass market approaches to communication (print ads,
radio ads, flyers) Want to spend their money on experiences that
are memorable and fun providing an argument for augmented patient
service. They are seeking to change their lives, not simply have
surgery.Looking at a relatively more mature market like the US as a
possible future for the UK and the European market, the past few
years has seen the following come to pass as the market begins to
make the transition from early adopter to early majority: Average
ages of myopes getting LASIK is decreasing A decrease in the
average income of LASIK patients (meaning more people are able to
afford the procedure) An increase in the number of patients using
financing options to pay for LASIKConclusion: What the Product Life
Cycle concept suggests about pricing decisions in laser eye
surgeryAs discussed previously, pricing professional services must
take into account many considerations, both strategic and
competitive. Two strategies include creaming the market (pricing
high to maximize profits) and penetrating the market (pricing low
to maximize market share).The product life cycle concept suggests
that the decades ahead for laser eye surgery will see a reduction
in average prices over time with an increase in the overall market
share anyway but were not there yet! While the window for creaming
the market may be inexorably closing, there is still a significant
percentage of market that will be happy to pay a higher price for a
service that seems to resist commoditization.Keeping prices high,
for several years in the future at least simply goes with the
current of the market. Deep discount penetrators, Im afraid, may be
leaving profits on the table by going against the grain of
market.Questions:1. Identify and elaborate the pricing strategy
suitable for the said service? Choose among Skim, Penetration and
Neutral.2. Highlight Advantages of the selected strategy and the
disadvantages of rejected strategies? 3. Identify the stage at
which the service is currently residing in the Pakistani
clientele?4. Elaborate the pricing strategies incorporating all the
stages of the life cycle suitable within the context of Pakistan
keeping this service in mind?
