pricing strategies

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Q. Discuss the various pricing strategies available to an organization.

Ans. Every product has a price, but each firm is not necessarily in a position to determine  the  price  at  which  it  should  sell  its  product  when  products  are undifferentited and competitors numerous.  The firm has no market power and must  take  the  price  level. Imposed  by  the  market  but  when  a  firm  has developed strategic marketing programe and thus has gained same degree of market power sitting the price is a key decision which conditions the success of its strategy to a large extent.  Therefore their should be proper pricing strategy. Adopted by the company. Now we  will discuss  the different types of pricing strategies in detail.

1. Value pricing strategy

 2. Maximum acceptable price

3. Price leadership

4. Pricing new products

5. Skimming Pricing Strategy

 6. Penetration Price Strategy

7. Product Line Pricing

8. Price Bundling

9. Premium Pricing

10. Image Pricing

 

1. Value  Pricing  Strategy  :–  Value  pricing  is  a  customer  based  pricing procedure which is an outgrowth of the multiattribute product concept. From the customers viewpoint a product is the total package of benefits that  is  received  when  using  the  product. Therefore  customer  oriented company  should  set  its  price  according  to  customers  perceptions  of produce benefits and costs. To determine the price the marketer needs to understand  the  customer’s  perception  of  benefits  as  well  as  their

perceptions of the costs other than the price.

2. Maximum  acceptable  price  :–  This  approach  is  particularly  useful  for setting the price of industrial products whose core benefits to the buyer is a cost reduction. To evaluate what the customer is prepared to pay the procedure followed is to identify and evaluate the different satisfactions or services provided by the product as well as all the costs (other than price) it implies.  The highest price that the customers will be willing to pay to the product is given by -

Benefits – Costs other than Price = Maximum Acceptable Price (MAP)

3. Price  Leadership  :–  Price  leadership  strategy  prevails  in  oligopolistic markets one member of the industry, because of its size or command over the market, emerges as the leader of the industry.  The leading company then makes the pricing moves which are duly acknowledged by other members of the reference market. Initiating a price increase is typically the role of the industry leader. The presence of a leader helps to regulate the market and avoid to many price changes  oligopolistic markets,  in  which  the  No.  of  competitors  is relatively  low,  favour  the  presence  of  a  market  leader  who  adopts  an anticipative  behaviour and periodically  determines  prices. Other firms than recognize the leader’s role and because follower by accepting prices the leadership strategy is designed to stave off price wars and predatory competitions, which tends to force down prices and all competing firms.

4. Pricing new products :– The more a new product is unique and bring an innovative solution to the satisfaction of a need the more delegate it is to price.  This price is the fundamental upon which depends the commercial and financial success of the operation.  Once the firms has analysed costs demand  and  competition. It  must  then  choose  between  two  very carbadictory stratgeis.

a) A high initial price strategy to skim the high end of the market.

b) A strategy of low price from the beginning in order to achieve fast and powerful market pentration.

5. Skimming Pricing Strategy :– This strategy consists of selling the new product at higher price and thus limiting oneself to the upper end of the demand  curve. This  would  ensure  significant  financial  returns  soon. After  the  launch  many  considerations  support  this  strategy  to  move successful.

Pricing skimming strategy is  definetly a  cautious  strategy  which  is more financial then commercial. Its main advantages is that it leaves the door  open  for  a  progressive  price  adjustment,  depending  on  how  the market and competitions develops.  From the commercial point of view it is always easier to cut a price than to increase it.

6. Penetration  Pricing  Strategy  :-  Penetration  strategy  consists  of  low prices  in  order  to  capture  a  large  share  of  the  market/right  from  the starting. It assumes the  adoption  of  an  intensive  distribution  system. The use of moss advertising to develop market receptivity an especially an adequate production capacity from the beginning.

In  this  case  to  outlook  is  more  commercial  than  financial. The penetration pricing strategy is more risky than a skimming price strategy. It firm plans to make the new product profitable over to long period. It may face  the  situation  that  net  lubants  might  later  use  him  production techniques which will give them a cost advantage over the innovating firm.

7. Product  Line  Pricing  :–  Strategic  Marketing  has  led  firms  to  adopts segmentation  and  diversification  strategies  which  have  results  in  the multiplication of the number of products sold by the same firm or under the same brand. Generally a firm has several product lines and with in each  product  line  there  are  usually  some  products  that  are  functional substitutes for each other and some that are functionally complementory. This  strategy of  product  development  bring about an inter dependency

between products, which is reflected either by a substitution effect or by a complementary effect since the objective of the firm is to optimize to overall outcome  of  its  activities.  It  is  clearly  necessary  to  take  this interdependence into account when determining the prices.

8. Price Bundling :– When the products are related but are non-substitutes i.e.  complementary  or  independent  one  strategic  option  for  the  firm  is optional price bundling where the  products can  be  brought  separately. But also as a package offered at a much lowered price than the sum of the parts. Because  the  products  are most  substitutes  it is  possible  to get consumers to buy the package instead of only one product of the lie.  This pricing strategy is common practice.  For instance, in the Automobile and Audiovisual  Markets  where  packages  of  options  are  offered  with  the purchase of a car or of stereo equipment.

9. Premium Pricing :– This price strategy applied to different version of to same product. A superior version and a basic or standard model. The potential buyers for standard model are not, if economic of scale exists it is unprofitable for the  firm  to limit  its  activities  to  one  of  the two  market segments  the  best  solution  is  to  exploit  jointely  economic of  scale  and heterogeneity of demand by covering the two segments the lower end of the market  with  a  low  price  and  the  high  end  with  a  premium  price. eg. Airlines have  used this  strategy. Their market  consists  of both a price insensitive business traveler and a very price sensitive holiday traveler.

10. Image  Pricing  :–  A  variant  of  premium  pricing  is  image  pricing  the objective is the same to signal quality to uninformal buyers and use the profit made on the higher priced vision to subsidize the price on the lower priced version. The difference is that there is no real difference between products and brand.  It is only an image or perceptual positioning.  This is common practice in markets like customer snacies etc. whose emotional or social values or a brand is important for the consumers.

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This article was published on 2012/02/29