Definition of Pricing Strategy
Pricing is one of the most important decisions a marketer must make regarding a product since price plays a crucial role in competitiveness and consumer demand. Marketers must determine price at the initial stage of a product's life and re-evaluate pricing to manage the delicate balance between production and profits.
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Basis of Price
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At its most basic, pricing strategy is based on the expense to produce the physical product or provide a service. This is known as cost of goods on a balance sheet and can include raw materials and other costs like machinery, labor and administrative overhead in goods-production companies, or salaries and bonuses in service-provider companies. Other internal and external considerations should be evaluated in the final determination of product price.
Industry Pricing
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Product prices must conform to going industry and category levels. However depending on quality, features and benefits, and even a unique selling proposition manufactured through advertising, a product can price itself at the higher range of category pricing.
Lexis and Infiniti were both introduced at the higher range of auto pricing. Use of higher-quality, luxury components as well as advertising a luxury message enabled them to succeed with their pricing strategies.
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Influence of Competition
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No product can succeed if its pricing is too out of line with standards in its industry. A 15 oz. bag of potato chips no matter how good cannot be priced at $10 and expect to amass a consumer following that allows it to achieve anything beyond a niche market interest. When developing pricing strategy, managers must do a thorough evaluation of competitor pricing to determine the prevalent pricing structures in use and how their product will be positioned in the category hierarchy.
Marketing Strategies
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Helping to make the pricing model work is the job of marketing. Decisions about the product, how it will be distributed, and how it will be promoted are all marketing activities that will be impacted by pricing strategy.
Low-price, high-volume goods end up in grocery stores rather than showrooms; but their advertising and marketing budgets may be comparable to that of a luxury automobile.
Consumer Demand
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Consumer demand can influence pricing. When demand is low, pricing levels fall to attract buyers. When demand is high, managers can raise pricing.
Price elasticity is a measurement used in business analysis to monitor the effect on consumer demand with pricing changes relative to quantity sold. Price elasticity can be thought of as a rubber band (consumer demand) that can stretch only so far before breaking (demand for the product). Testing the limits of elasticity means additional profits courtesy of a strategy that balances pricing with demand.
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References
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Comments
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the world of business is all a bout playing your cards well and some times good luck.
