Do companies well understand how to most profitably price their products across the entire product lifecycle, especially considering full supply chain costs?

Often not, say the consultants at McKinsey, asserting that the impact to the botton line can be substantial.

The chart below tells the tale. As can be seen, one industrial products company assigned supply chain and other costs on a fairly straightline basis, regardless of where the product was in its lifecycle. While the result of that approach showed some lower profitability from older products, the cost hit did not raise many alarms.

But when the costs were more accurately assigned to each product, a far different picture emerged. Many "late life" products were actually losing the company substantial sums - much more than initially understood.

Source: McKinsey Quarterly

McKinsey says that companies often fail to recognize the infuence of pricing for products at older lifecyle stages on newer product pricing, sometimes driving it down, and that old products often can be prices high for customers that don't want to switch.

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