Different Strategies of Pricing with Examples

Introduction

The world of business fuels the economy of the United States. Looking at their bottom line, one would often find that even if they generated a large gross income, the net profit is not quite as favorable. The potential of businesses to maximize revenue generated for their organization is by implementing the correct pricing strategy by its owners. There is a certain balance between pricing the product too high, too low and whether or not all the business costs are covered along with the product, place and promotion. Needless to say, the selected price of a produce will have a direct effect on the success or downfall of your business. This paper will evaluate the various methods of determining price and assess when each strategy would best be used in the course of business.

Pricing Strategy

Price is determined by considering various factors into the equation. It is not as simple as computing all the cost involved and setting the price tag on the product. There is a lot of research that goes into considering the price for an actual product. Some of the factors that are taken into consideration would be the ability of the customer to pay, the conditions that affect the current market are, the level of competition is and what are the various actions they may take when the product is launched, costs that are associated with distribution, and the base of your target customers. Pricing strategies are utilized in order to reach the optimum pricing point where the organization is able to maximize the amount of profitability on the amount of sales generated from your product or service offered by the organization. The determined price point will have a profound effect on the long-term success of your business. The various pricing strategies will be evaluated.

Pricing at a Premium

Premium pricing is allowing the business to set the price point higher than other competitors for a similar product of service. This is most beneficial when conducted at the onset of the beginning phase of a products life cycle and most especially if they are selling goods and services that are unique to the market. Perception by the customers need to be at a higher level, this is where owners will put more effort into their marketing strategies, packaging and also provide a high-quality product in order to support the higher premium price. Luxury bag maker Louis Vuitton prices his products at a premium because it is handmade which are waterproof and fireproof and are timeless.

Pricing for Market Penetration

Market penetration is a form of pricing strategy that will try to attract buyers by lowering the pricing point of their goods and services. This is a common strategy utilized by companies that are new to the market and are trying to penetrate the market to gain market share. The downside of this strategy is that there is initial loss to the business in their level of income. Awareness in the market will be able to provide recognition to the new product and over time, the company will be successful in penetrating the market and will be able to eventually increase the time once their position in the market has been stabilized.

Uber was officially launched in the Philippines in February 2014. Shortly after, another company called GRAB launched in November 2014 offering a much lower pricing scheme compared to its rival Uber. They also lowered the requirements to become a registered driver, allowing them to attract more vehicles in the process. As of 2018, Uber officially merged with Grab, surrendering their market share as they realized they could no longer compete with the attractive rates that Grab offered. This is an example of a successful strategy for market penetration.

Economy Pricing

Is a strategic pricing method when they are able to lower the price to an assigned product where their productions costs are low. An example of this product would be the costs of generic food sold at the local grocery stores since the generic brands normally do not have a budget on marketing and they provide little if no marketing and promotional expenses.

Take your Kirkland brand for milk at your local super store. Kirkland Apple Cider Vinegar runs for $5.69 for the 32oz bottle at the super store which runs to $0.17 per ounce. Compare that to the Braggs brand which sells apple cider vinegar for double the price $12.95 for a 32ounce bottle which comes to $0.63 per fluid ounce.

Price Skimming

Price skimming will allow for the company to initially set a higher pricing during the introductory phase and gradually lower the pricing as the various goods from competitors will start penetrating the market. While this allows for the organization to maximize profit during the introductory phase, the downside is when they start lowering the prices, it may have an alternative effect of losing the interest of the consumers due to the illusion it generated of being a superior produce.

Apple product launches utilize price skimming. They will sell their iPhone at a premium during the launch but gradually start lowering the price when competitor products are introduced to the market.

Psychology Pricing

Techniques that are utilized in order to encourage the consumers to respond on emotional levels rather than to make logical ones are referred to as psychological pricing. The goal of this strategy is to create an illusion by increasing the demand while the illusion presented, would be the enhanced value for the consumer. Retailers will price a bag for $199 which is psychologically proven to attract more consumers than the $200 price tag. The reason behind it that consumers will pay more attention on the first price tag that they see and not necessarily the last.

Bundle Pricing

This strategy is allowing the company to sell multiple services of products at a lower rate as compared to having consumers purchase the items individually. This is a very effective method of moving products that are slow moving and can also provide value perception in the eyes of the consumers as they are able to receive something that is free. The mobile carriers on Saipan provide bundle packages which would include Wi-Fi at home, landline telephone and also the mobile data package.

Conclusion

Reviewing the various strategies on pricing and how each company provided as examples have been proven to be successful in their own manner. It is through the thorough understanding for the products and services rendered by the company that one will be able to price the products and services appropriately.

References

Benton, W.C. Jr. (2014). Purchasing and supply chain management (3rd ed.).