19/06/2013

Pricing Strategy

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After setting pricing objectives the next decision a marketer must make is on pricing strategy. A pricing strategy is a plan or course for achieving pricing objectives. The strategy sets guidelines for achieving pricing objectives. Pricing strategies form an important component of an overall marketing strategy and they determine the role of price in the marketing mix. They may relate to the introduction of new products, competitive or economic condition, government regulation or the realization of pricing objectives. There are a lot of strategies open to a marketer in his effort to achieve marketing objectives.


Penetrating Strategy

Price penetration strategy is a typical pioneer pricing strategy adopted mostly at the introduction of a new product, and in other instances, such as the saturation and product decline periods. Price penetration sets a
price below the prices of competing brads to gain access (penetrate) into a market and generate a larger unit sales volume. As the product is getting accepted, price is gradually increased. Price penetration strategy is most applicable under the following conditions:
  • When the demand for the product is highly elastic i.e. consumers would purchase the product if it were priced at the penetration level.
  • Where the cost of production can be kept low especially through large-scale production.
  • When the market fears strong competition shortly after introducing the product to the market. The first implication is that the low price per competitors. Secondly competitors may be reluctant to enter the market if the penetration price lets the pioneer gain a large market share quickly.
  • Where there is no adequate high-income market to support the skim-the-cream technique.


Skimming Strategy

This is another type of pioneer pricing strategy and the opposite of penetration strategy. It refers to the product coming into the market with a high price to skim up the market, and make maximum profit before competitors start to come in. it charges the highest possible price that buyers who most desire the product will pay. It is a policy aimed at consumers who are more concerned about quality or status than price. Price skimming strategy is most applicable under the following conditions:
  • When the life of the product is expected to be short, a skimming strategy can generate the much-needed initial cash flow to help offset developmental cost in the shortest possible time. At the same time the innovator can make highest profit before competitors start to come in.
  • When the quality of the product is high.
  • When a firm has limited production capacity at the introduction of a new product, a skimming price can be used to keep demand in line with the firm’s production capabilities.
In using the price skimming strategy, you (marketer) aim at the most profitable segment of the market instead of the mass market that exist under the penetration strategy.


Psychological Pricing

This price strategy is designed to encourage purchases that based on emotional reactions rather than on rational responses. It is mostly in use at the retail level and seldom used for organization products. It can be in the form of odd-even pricing, prestige pricing, customary pricing, price lining and pricing based on attractiveness of number.
Odd - Even Pricing – This assumes that more of a product will be sold at N99.99 than N100. Supposedly customers will think or at least tell their friends that the product is a bargain, not N100 but N99 plus few insignificant kobo.
Some marketers believe that odd prices produce more sales because odd prices attract more customers than even ones. Other marketers adopt even prices in the hope that customers will perceive the product as being a high quality premium brand. Hence they will prefer tag of N100 on a product, to paying N99.99 for the same product.
Prestige pricing – This involves setting prices at an artificially high level to provide prestige or a quality image. This strategy is used especially when buyers associate a higher price with higher quality. Typically examples can be found in product categories such as perfumes, automobiles, liquor, jewelry and pharmaceuticals where high is associated with high potency.
Customary pricing – Customer pricing ensures that certain products are priced on the basis of tradition. This is to say that certain products are priced on the basis of tradition. This is to say that for a long time the price of such products remain constant and unchanged. It is, therefore, possible to buy a news magazine for N5 five years ago; today the price remains the same while the same N5 is expected to be paid for same news magazine in the next five years.
Economic realities characterized by fluctuation and inflation has made customary pricing difficult to achieve in the recent years. Nevertheless few marketers who want to adopt the strategy can resort to produce size variation instead of yielding to price variation.
Price lining – This strategy emphasizes the setting of a limited number of prices for selected lines or groups of merchandise. A retailer may have various styles and brands of similar quality men’s shirts that sell for N500, another line of higher quality shirt N1000. A customer who has already decided to buy a shirt in the N600 range would probably consider shirts priced at N500 or N700 but not the one priced in the N1000 range. Any new product (shirt) to be introduced must be within the range of existing ones, otherwise, buyer’s reception of all the models in the line will be changed.


Professional Pricing

People like doctors, lawyers who have skill or experience in a particular field, adopt professional pricing strategy. They charge a standard fee for a particular service regardless of the problem involved in providing that service. For example barbers charge N200 for a hair cut regardless of the style involved.
The concept of professional pricing carries with it the idea that professionals have an ethical responsibility not to over charge unknowing customers.


Promotional Pricing

Promotional pricing strategy operates when price and promotion as two elements of the marketing mix are merged together to form a strategy i.e. when pricing include price leaders; special event pricing, superficial discounting and experience curve pricing.
Price Leaders – A product often sold below its usual profit margin, near cost or even below cost is termed a price leader. Price leaders are used to attract customers to the store in the hope that sales of regularly priced products will rise and increase sales volume and profit
Special Event Pricing – Special event pricing is carried out to increase sales volume by co-ordinating price and advertising or sales promotion for seasonal or special occasions. It involves advertised sales or price cutting that is limited to a holiday season or event.
Superficial Discounting – This is sometimes referred to as “is-was pricing”. It is a fictitious comparative pricing, which gives customers the impression that a product is sold at a discount when in actual fact there is no discount. For example a company may declare that a product “was regularly N300, is now N200.00

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