Developing Pricing Strategies and Programs
Market mix for companies includes 4p’s product, price, place, and promotion. Price is the only one among them that produces revenue; the others produce costs. Price is also the easiest to adjust. Rent, wages, commissions, tuition, and fees are the price one pay for some good or service. New economic realities have caused many customers to rethink carefully how they spend their money, and many firms to review their pricing strategies as a result.
Executives make mistakes while pricing their products like determining costs and taking traditional industry margins, not changing the price regularly enough to capitalize on and utilize the market changes, setting the price independently of the rest of the market mix and failure to vary price product item, market, segment, distribution channels, and purchase occasions.
Purchase decisions are based on how consumers view prices. Many consumers use the cost of the items as an indicator of the quality. Image pricing is very useful with ego-sensitive products such as perfumes, designer clothes, and expensive cars. Many sellers believe that prices should end with odd numbers. Customers see an item priced at $399 as being $300 rather than the $400 range. Price encoding in this fashion is paramount if there is a chance for mental price break at the higher, rounded price.
The firm must consider many factors while setting its pricing strategy; selecting the pricing objective, determining the demand, guiding the cost, analyzing competitor’s costs, selecting a price method and lastly choosing the final price. Once the pricing policy is in place the firm is ready to choose a price. Three major considerations in price determination: costs arranges a floor to the price, competitor’s prices range and the corresponding price of substitutes providing an orienting point.
Pricing should also adapt to factors like geographical location, market segment, and economic conditions. Firms should remain flexible towards pricing policy and change per market dynamics. Firms should also be careful to avoid reacting blindly to price changes by the competitors and should rather focus their attention on analyzing the competitors underlying motives.
