Marketing
Pricing Strategies
Pricing strategies refer to the methods and approaches used by businesses to set the prices of their products or services. These strategies can include penetration pricing, skimming pricing, value-based pricing, and competitive pricing, among others. The goal of pricing strategies is to maximize profits, gain market share, or create a competitive advantage.
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12 Key excerpts on "Pricing Strategies"
- D.P. Warne(Author)
- 2023(Publication Date)
- Society Publishing(Publisher)
Companies must be aware of how much their rivals’ prices may deviate from the one established by the firm. Step 5: The price is estimated using numerous approaches. The most frequent option is the markup technique, in which the price is fixed at the specified profit level. Prices are created using the target return pricing technique based on company-specified returns on investments. Setting prices based on customer perceptions of value and a company’s capacity to supply that value is referred to as the perceived value pricing approach. Companies apply the value pricing strategy to charge less on items that have committed consumers. This strategy is extensively applied in supermarkets. Group pricing, going rate pricing, and auction type pricing are some different pricing systems. Business Marketing Management in a Business-to-Business Context 110 Step 6: Now that the previous five stages have been done, firms may select their ultimate pricing. This ultimate cost is set by taking into consideration how buyers evaluate the product’s quality. Positioning with the marketing and advertising strategy also affects the eventual cost. Pricing should be modified to account for market segmentation, location, and general economic conditions (Backhaus et al., 2011). Companies should keep price flexibility and respond to changing market conditions. Companies must review their underlying purpose rather than just responding blindly to pricing changes created by competition. 5.1. FIVE LEVELS OF STRATEGIC PRICING World Class Price: The Journey is a book I recently published to “get personal about price.” After more than two decades of experience and 700 projects, we developed a pricing strategy that is now used by all of our clients. Pricing products solely based on cost does not always reflect what customers are willing to pay for them.
eBook - PDF- William Pride, O. C. Ferrell(Authors)
- 2019(Publication Date)
- Cengage Learning EMEA(Publisher)
Demand-based pricing results in a high price when demand for a product is strong and a low price when demand is weak. In the case of competition-based pricing, costs and revenues are secondary to competitors’ prices. 20-5 Compare the different types of Pricing Strategies. A pricing strategy is an approach or a course of action designed to achieve pricing and marketing objectives. Pric- ing strategies help marketers solve the practical problems of establishing prices. The most common Pricing Strategies are differential pricing, new-product pricing, product-line pricing, psychological pricing, professional pricing, and promotional pricing. When marketers employ differential pricing, they charge different buyers different prices for the same quality and quantity of products. For example, with negotiated pricing, the final price is established through bargaining between the seller and the customer. Secondary-market pricing involves setting one price for the primary target market and a differ- ent price for another market. Oftentimes the price charged in the secondary market is lower. Marketers employ periodic discounting when they temporarily lower their prices on a patterned or systematic basis because of such reasons as a seasonal change, a model-year change, or a holiday. Random discounting occurs on an unsystematic basis. Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. PART 8: Pricing Decisions 608 Two strategies used in new-product pricing are price skimming and penetration pricing.
eBook - ePub- Paul Reynolds, Geoff Lancaster(Authors)
- 2005(Publication Date)
- Routledge(Publisher)
Marketing management should devise a pricing strategy that is compatible with strategies attached to other elements of the marketing mix. It is not always possible to set a price and apply this rigidly to all customers in all market situations. A pricing strategy denotes how a company will price its products at particular periods of time or particular market conditions. Demand-orientated pricing sets a base price that the company must endeavour to achieve, but it assumes that price be modified in line with changes in demand. Manufacturers must realise that customers are not the same. Some will purchase greater quantities than others, or be situated in areas that are more costly to reach.If a target-return-on-investment price is set, this may only be appropriate during the maturity stage of the product life cycle that was explained in the last chapter. During introduction or growth, it is often necessary to employ a pricing strategy that will enable the target return to be achieved over the long term.A company’s ability and willingness to formulate Pricing Strategies is a reflection of its willingness to adapt and modify price according to the needs of customers and market conditions.7.6.1 Discounting
The discount structure a company employs is a major element of pricing strategy and an indicator of the firm’s flexibility. If customers buy products in large quantities, they may reasonably expect to be charged a lower price than that charged to smaller purchasers. The seller may also offer discounts voluntarily in order to encourage large orders that facilitate economies of scale and assist effective production planning. Such quantity-related discounts can refer to individual orders or be based on an estimated off-take that is planned over a given period. In certain markets, price discounting is important. Day and Ryans (1988 ) say that if used with imagination and creativity they can provide a firm with a strong competitive advantage.Manufacturers can offer discounts to encourage sales of a new product or accelerate demand for a product whose stocks are high, owing to seasonal or cyclical demand variations. In the production context, it is desirable that a constant rate of output is maintained. If market conditions are not conducive to this, a price modification by means of discounting might encourage sales sufficiently to counteract variations in levels of demand.
eBook - PDF- Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, James C. Hyatt(Authors)
- 2018(Publication Date)
- Openstax(Publisher)
If a price is too high, the product won’t sell well and the firm will lose money. If the price is too low, the firm may lose money even if the product sells well. Prices are set according to pricing objectives. 454 Chapter 11 Creating Products and Pricing Strategies to Meet Customers' Needs This OpenStax book is available for free at http://cnx.org/content/col25734/1.7 11.9 Pricing Strategies and Future Trends 9. What strategies are used for pricing products, and what are the future trends? The two main strategies for pricing a new product are price skimming and penetration pricing. Price skimming involves charging a high introductory price and then, usually, lowering the price as the product moves through its life cycle. Penetration pricing involves selling a new product at a low price in the hope of achieving a large sales volume. Pricing tactics are used to fine-tune the base prices of products. Sellers that use leader pricing set the prices of some of their products below the normal markup or even below cost to attract customers who might otherwise not shop at those stores. Bundling is grouping two or more products together and pricing them as one. Psychology often plays a role in how consumers view products and in determining what they will pay. Setting a price at an odd number tends to create a perception that the item is cheaper than the actual price. Prices in even numbers denote quality or status. Raising the price so an item will be perceived as having high quality and status is called prestige pricing. Pricing for services is more complicated and is often tailored to specific services for a specific customer. 11.10 Trends in Developing Products and Pricing 10. What trends are occurring in products and pricing? The internet has given pricing power to both buyers and sellers. A second trend is that many firms are using databases to create one-to-one marketing.
eBook - PDFStrategic Marketing Management in Asia
Case Studies and Lessons across Industries
- Syed Saad Andaleeb, Khalid Hasan(Authors)
- 2016(Publication Date)
- Emerald Group Publishing Limited(Publisher)
13 ▾ Pricing Strategy Rajesh C. Jampala Pricing is one of the most important elements of the marketing mix and has come to take center-stage in marketing warfare. It is a complex task and there is a science and art to pricing. To fix a successful price one has to depend on the scientific approach by carefully using metrics as well as intuition and judgment. This chapter provides an exposure to the various approaches to pricing that marketers usually rely upon. Emerging business models highlight the value framework, which deals with marketing as a process of creating, communicating, and delivering value to the customers. As businesses face cut-throat competition, the emphasis should be on capturing and delivering value of the offering rather than on price. One simple way to understand the difference between price and value is through the statement: what a customer pays is price and what customer gets is value . By increasing the benefits and by reducing the cost to the customer, marketers can enhance the value of the offering. Hence, pricing should be based on value; capturing value is its purpose. Virtually all companies want to set prices near the value that their products and services deliver to the customers. This requires a strategic shift from cost-or-competition-based pricing with low price-realization capabilities to customer value-based price setting with high price-realization capabilities. 383 A selected price should also be consistent with other variables in the marketing mix. It should fit with the realities of the market-place and also achieve the financial goals such as desirable profit. From the firm ’ s point of view, an efficient price is a price that is very close to the maximum that customers are prepared to pay. In economic terms, it is a price that transfers most of the consumer surplus to the producer. In the words of famous investor Warren Buffet “ The single most important decision in evaluating a business is pricing power.
eBook - PDF- Richard M. Hodgetts, Donald F. Kuratko, Margaret Burlingame, Don Gulbrandsen(Authors)
- 2015(Publication Date)
- Wiley(Publisher)
Discount A reduction in the list price of a product or service. Geographic pricing A pricing strategy whereby a company charges customers based on where they live. Leader pricing The marking down of a popular product in order to attract more customers. Market A group of consumers who behave in a similar way. Marketing The process of promoting and selling products or services. Market niche A focused, targetable segment of the market; for a small business, a group of potential customers. Marketing research A systematic study of the factors that affect a business’s sales for the purpose of increasing profit. Monopolistic competition A market with many firms, each producing a small share of the output demanded. Monopoly A market with only one seller or producer and no substitutes for its products or services. 304 UNDERSTANDING MARKETS AND PRICING Odd pricing A pricing strategy of setting a price just below a round number, such as 99 cents rather than $1. Oligopoly A market where a few dominant firms account for most of the industry sales. Penetration pricing A strategy of using a low price that is competi- tive and designed both to stimulate demand and to discourage competition. Price lining The process of offering merchandise in several different price ranges. Primary research The collection of information previously unavailable. Pure competition A market with many independent sellers, each offering standardized products in the same basic way; the products are virtually identical, and buyers are indifferent as to which they purchase. Relevant price range The price that is neither above what current customers will pay nor below these levels; also, the price range that is not below the level where the business owner can sell at a profit. Return on investment control The process of reviewing product lines’ rev- enues and costs and keeping only those lines that deliver a reasonable return on investment.
eBook - PDF- Mark S. Glynn, Arch G. Woodside, Mark S. Glynn, Arch G. Woodside(Authors)
- 2009(Publication Date)
- Emerald Group Publishing Limited(Publisher)
1 does not include important causal relationships affecting goal variables. Most importantly, Fig. 1 does not include the documented increases in both market share and profit performance caused by increases in a firm’s product quality, relative to competitors’ product quality levels (see Buzzell & Gale, 1987 ; Clifford & Cavanagh, 1985 ). PRICING STRATEGY Pricing strategy is an organization’s plan to set and manage prices to compete in a market and achieve organization goals and objectives (see Porter, 1980 ; Walker & Ruekert, 1987 for additional relevant definitions of strategy). Pricing implementation is specific action and behavior that enacts, Pricing Theory and Practice in Managing B2B Brands 431 PRICING STRATEGY CUSTOMER RESPONSE ASSESSMENT COMPETITOR RESPONSE ASSESSMENT STRATEGIC VARIABLES EXTERNAL MARKET VARIABLES Perceived Value Measuring Buyer Response Price Sensitivity Competitive Signals Price Wars COSTING AND CONTRIBUTION ASSESSMENT Segmented Pricing Pricing Status Type of Pricing Strategy INTERNAL FIRM VARIABLES Perceived Quality Fixed vs Variable Costs Incremental Costs Gross Profits PRICING DECISION RECOMMENDATIONS Impact on Profits Impact on Market Share Impact on Customer Retention Fig. 1 . An Integrative Framework for Profit-Driven B2B Pricing. GERALD E. SMITH AND ARCH G. WOODSIDE 432 performs, or executes pricing judgments and decisions (see Bonoma, 1984 ; Bonoma, Crittenden, & Dolan, 1988 ; Walker & Ruekert, 1987 ). Norma-tively speaking, pricing implementation should follow a design that executes pricing strategy to achieve and sustain commitment to strategic pricing goals and purposes. The extent to which pricing strategy has a presence in organizational attention, cognition, and interpretation is the first issue ( Dutton, 1988 ; Dutton & Jackson, 1987 ; Pfeffer, 1985 ). This proposition means first of all that pricing strategy must be present.
eBook - ePub- Geoffrey Lancaster, Lester Massingham(Authors)
- 2017(Publication Date)
- Routledge(Publisher)
3 We can also see that, according to the precise objectives, we might arrive at very different prices for our product and services. Where a company has multiple objectives, Pricing Strategies may need to consider tradeoffs between different possible price levels, such that these different objectives are met.In addition to these broader corporate objectives, pricing decisions must also reflect and support specific marketing strategies. In particular, Pricing Strategies need to be in line with market targeting and positioning strategies, which were outlined in Chapter 3 . Clearly, if a company produces a high-quality product or service aimed at the prestige end of the market it would not be sensible to set a low price even if cost efficiency allowed this. Pricing, therefore, must be consistent with the other elements of the marketing mix and the selected positioning strategy. Effectively, the selection of company and market objectives, market targets and the formulation of a positioning strategy constrain or delineate the range of Pricing Strategies and specific price levels.An example of how price must reflect and support the overall positioning strategy of the company is the price set for the Aston Martin DBS. The car is positioned at the top end of the market and with just 500 made in the UK for sales worldwide the emphasis is on exclusivity. Many people still associate Aston Martin with the character James Bond, emphasizing the racy and prestigious image intended. Prices start at £160,000.Demand considerations
A key parameter affecting pricing decisions is customer based. The upper limit to the price to be charged is set by the market, unless the customer must purchase the product and we are the sole supplier. In competitive markets, demand – that is, the price customers are willing and able to pay – is a major consideration in the selection of Pricing Strategies and levels. It is in the analysis and interpretation of demand and demand schedules
eBook - PDFPrinciples of Marketing
A Value-Based Approach
- Ayantunji Gbadamosi, Ian Bathgate, Sonny Nwankwo(Authors)
- 2013(Publication Date)
- Bloomsbury Academic(Publisher)
5 Assume that a friend of yours is contemplating going into the fashion business but with the plan to target customers with a taste for luxury. She has been advised to use market skimming as the pricing strategy but has no understanding of how this works. Briefly explain this to her in relation to the fashion industry. Review questions 1 What is the importance of price to marketers? 2 Why is the price of a product or service not always the most important consid-eration to consumers? 3 What are the internal and external factors that influence pricing decisions? 4 Outline the key considerations in deciding on a pricing method. 5 Compare and contrast price skimming and penetration Pricing Strategies. ohohe 227 7 Group tasks 1 In groups, visit any price comparison website to compare the APRs of various credit card offers. Record specific differences between the competing products as highlighted on the website. Discuss the implications of these in relation to customer value. 2 Assume you are a group of entrepreneurs contemplating the introduction of your new brand of soft drinks in the British marketing environment. Compile a list of factors that will influence your decision about the appropriate price of this new product, separate the factors into internal and external and discuss what you can do to overcome the challenges associated with the ones categorized as external. Glossary/Key terms Business-to-business (B2B) online marketing: Businesses using online marketing to reach new business customers, serve current customers more effectively and obtain buying effi ciencies and better prices. By-product pricing: Setting a price for by-products to make the main product’s price more competitive. Captive product pricing: Setting a price for products that must be used along with a main product, such as blades for a razor and games for a videogame console. Competition-based pricing: Setting prices based on competitors’ strategies, prices, costs, and market offerings.
eBook - PDF- Louis E. Boone, David L. Kurtz, Michael H. Khan, Brahm Canzer(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
In general, firms can choose from four alternative Pricing Strategies: skimming, penetration, discount or everyday low pricing, and competitive pricing. Skimming Pricing A skimming pricing strategy sets an intentionally high price relative to the prices of competing products. The term comes from the expression “skimming the cream.” This pricing strategy often works when introducing a distinctive good or service that has little or no competition, but it can also be used at other stages of the product life cycle. A skimming strategy can help marketers set a price that separates a firm’s high‐end product from those of competitors. It can also help a firm recover its product development costs before competitors enter the field. This strategy is often used with prescription drugs. Penetration Pricing A penetration pricing strategy sets a low price as a major marketing tactic. Businesses may price new products much lower than competing products when they enter new industries that have dozens of competing brands. Once the new product achieves some market success, through pur- chases encouraged by its low price, marketers may increase the price to the level of competing products. But stiff competition can prevent the price increase. Everyday Low Pricing and Discount Pricing Everyday low pricing (EDLP) is a strategy of maintaining continuous low prices instead of using short‐term price‐cutting tactics such as cents‐off coupons, rebates, and special sales. This strategy has been used successfully by retailers such as Walmart and GNC to consistently offer low prices to consumers; manufacturers also use EDLP to set stable prices for retailers. Businesses that use discount pricing hope to attract customers by dropping prices for a set period of time. Automakers usually offer consumers special discounts on most or all of their vehicles during the holiday shopping season.
eBook - PDF- A. Coskun Samli(Author)
- 1998(Publication Date)
- Praeger(Publisher)
Chapter 15 Pricing Strategies for Retailers Retail pricing should be studied at two separate levels. Even though pricing at the retail level is an important area of consideration to be- gin with, the role pricing plays in retail marketing strategy is particu- larly critical. Retailers often shy away from detailed pricing decisions. Instead, they adopt a simplistic orientation to establishing prices. Per- haps the most critical consideration in this context is that pricing is quite often not utilized as a critical tool in developing an overall retail marketing strategy. Much of the time prices are used in a neutral sense. They are established on the basis of a cost-plus or manufacturer's sug- gestion. Even though the retailer may not be using pricing as an active element of the overall strategy, it still plays a de facto active role. This is due to the overall price consciousness of the market and the prevail- ing keen competition. Consumers often patronize stores on the basis of price levels that these stores project (Cox and Cox 1990). Basically, there are internal and external factors influencing a retailer's pricing decisions. If the price is to be an active strategic ele- ment, then the retailer must know these internal and external factors. It is not clear which set of factors is more important in the store's pricing decisions. FACTORS INFLUENCING PRICES INTERNALLY There are three groups of internal factors: (1) price objectives, (2) stra- tegic alternatives, and (3) goal-related pricing decisions (Samli 1989). Pricing Strategies for Retailers 325 Price Objectives Even though pricing is a powerful tool for the retail establishment to fulfill its objectives, much of the time this tool is not used properly by retailers. The use of pricing, at least partially, is determined by the firm's pricing objectives.
eBook - PDF- Greg Elliott, Sharyn Rundle-Thiele, David Waller, Ingo Bentrott, Siobhan Hatton-Jones, Pete Jeans(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
Pricing throughout the product life cycle Pricing decisions should be systematic and rigorous, following a methodical and logical process that ensures all relevant issues and options are considered. It should be noted, however, that pricing is not an exact science. Many pricing decisions will be made without going through a formal sequence of steps. Even when a formal process is followed, a marketer should not expect to derive the optimal or ‘correct’ price. Rather, pricing in practice usually involves a trade-off between the competing and conflicting considerations of the organisation’s costs (and its profit objectives), the activities of competitors, and the attitudes and price sensitivity of customers. In this sense, pricing could be argued to be ‘an exercise in compromise’. With an understanding of customer perceptions of value, demand, costs and competition, the organi- sation must identify its preferred pricing tactics in order to implement pricing. In addition to providing a path for implementing pricing, pricing tactics allow the organisation to manage its responses to situational opportunities and threats, such as unexpected fluctuations in industry supply (e.g. worldwide fluctuations in supplies of oil, food, minerals or raw materials) or the unexpected behaviour of competitors (e.g. when a competitor ‘dumps’ product in the local market). Pricing new products Setting the initial price for the launch of a new product is a crucial aspect of product life cycle strategy (see the chapter on product). While prices can, and will, be adjusted after a product launch, the initial launch price can fundamentally influence the success of the entire marketing strategy.
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