Pricing Strategies

Pricing Strategies

Introduction

One of the four foremost components of the marketing mix is price. Pricing is an important strategic topic because it is associated to product positioning. Furthermore, pricing sways other marketing mix components for example product characteristics, conduit conclusions, and promotion.

While there is no lone recipe to work out pricing, the next is a general sequence of steps that might be pursued for developing the pricing of a new product:

1. Develop marketing strategy - perform marketing investigation, segmentation, aiming at, and positioning.

2. Make marketing mix decisions - characterize the product, circulation, and promotional tactics.

3. Estimate the demand curve - realize how amount claimed varies with price.

4.  Calculate cost - encompass repaired and variable charges affiliated with the product.

5. Understand ecological factors - assess probable competitor activities, realize lawful constraints, etc.

6. Set pricing objectives - for example, profit maximization, income maximization, or price stabilization.

7.  Determine pricing - utilizing data assembled in the overhead steps, choose a pricing procedure, develop the pricing structure, and characterize discounts.

Relation between price and Cost

Price is a function of supply and demand.  Notice the phrase “cost” doesn't happen there.  It is factual that cost is, over the long period, a smaller compelled for price - else you'd proceed out of business.  It is furthermore factual that high upfront repaired charges can conceive obstacles to application and thus smaller supply. The only case in which price is very resolute by (variable) charges is in a commoditized market.  A market is commoditized when competing products are competently interchangeable and thus clients make conclusions founded solely on price.  In commoditized markets, price tends to converge in the direction of cost.

In non-commoditized markets, variable charges have no result on price.  Most data expertise companies are not commoditized; thus variable cost and price are unrelated.  That is why there can live companies like Google and Microsoft that are so insanely profitable.  If the cost of producing and circulating a copy of Microsoft Office dropped tomorrow, there is no cause to believe that would sway their pricing.  The most profitable commerce historic has been pharmaceuticals, because they are competently conceded monopolies, by patents, decreasing the supply of a granted pharmaceutical to one.

Cusumano (2008) explain, retailers may be promoting non-key products that buyers generally manage not address or address less when forming a store's OSPI. But high promotional undertaking may cloud price perception. Our study displayed a high contradictory association between consumers' correctness of price perception and promotional activity. When comparing to ...