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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