Chapter 09 - Developing Pricing Strategies and Programs

 


“Price” can be defined as a monetary value given to a product or a service based on different factors. This price can be rent, fee fare, salary, toll, premium etc. And most significantly, price is the unique and only element of the marketing mix that gives revenue to the company. All other elements in marketing mix incur cost. Hence, the marketers must handle this element wisely when preparing the marketing plan. Because when taking decisions on pricing, we as marketers must have an understanding about the price and quality concerned customers in the market. Psychology and perception on pricing of the customers are different from each other since, different customers have different experiences, knowledge, and income levels with them. Their price comparisons and purchase decisions may be backed by those factors. Based on the consumer psychology on pricing, there are 4 different types of consumer behaviors.

 

Reference prices

Most of the customers have fair knowledge about the prices of the products they purchased earlier. But very few customers can recall the correct prices of the products which they purchased earlier, and they use that knowledge to compare the prices of the same products which sell in different shops and take the relevant purchase decision based on that information.

 

Price quality references

Most of the customers use price as an indicator of the quality of that product. Specially, when purchasing ego-sensitive products like perfumes, some cars etc. they think of purchasing a high-priced product to show that they are quality products.

 

Price endings

In some instances, marketers set prices with odd numbers which create a different perception of the product in the customers’ minds. Ex: price of a product was set to EUR 299.00, and this implies the product is in the range of EUR 200 rather than EUR 300. And the customers are willing to buy the product with the perception of a lower price in their minds.

 

Price cues

Marketers use price cues to influence customers’ perception of quality of the product over its pricing. For this, marketers use left – to – right pricing, put “sale” after the price tag, price ends with “0” or “5” etc.

 

Steps in setting price



 

Pricing strategy of a company could be….

If it is a start-up company and wishes to establish in the market with their offerings, initially they need to cover their costs. At least they need to set the price by considering the Break Even Point. At the same time, they can make a foundation to establish in the market with their offerings by implementing “Market penetration pricing strategy” which sets a comparatively lower price for the offerings thinking of the market is price sensitive. It will help to avoid potential competition in the market since it is comparatively lower price than competitors.

On the other hand, if the company is well-established in the market with a solid customer base, they can implement “Market Skimming Pricing Strategy” to skim the market when they launch a new product to the market. Specially, when launching high-tech products, this pricing strategy would be the best option. This Simming price will attract the customers with high current demand and this pricing indicates about the quality and image of a superior product.

Example

Apple company uses the price skimming method when they launch a new product to the market. Specially, when they launch new i-phone to the market they set comparatively high price, and the most significant point is, there are customers who are waiting for their new product to buy at any cost. That pricing indicates the technological improvements and performance of the apple phone. Apple company is confident to apply that skimming pricing strategy since they know about the buying behavior of their customers.


What ever the pricing strategy implemented by the company, it is required to follow the above mentioned “steps in setting price”, because to set the price, initially there are important factors to be considered. It is important to identify the current demand for the product in the market by conducting relevant market research. By doing that the company can understand the current market trends to customize their offerings. The company should consider the cost factor when pricing and should take relevant measures to reduce the cost by enhancing the efficiency of the production and administrative processes accordingly. And also, the company needs to analyze their competitors periodically to understand their pricing strategies to take defensive actions.  

   

 References

Avgeropoulos, I. (n.d.). Marketing Planning: Developing Pricing Strategies and Programs (PPT) Chapter 9 - Developing Pricing Strategies and Programs.pptx (sharepoint.com) 

 


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