Pricing Decisions Pricing is important factor as it directly relates to the product positioning. When a product is positioned incorrectly it is subjected to unfair competition. Businesses make strategic decisions regarding pricing in order to meet their organisational objectives. Businesses consider internal and external elements when price setting The right price, pricing strategy that meet both organisational objectives and needs of customers.
Price Setting Business need to consider when price setting1. Value based Pricing= Centralises the perception and values of customer i.e value ofsoft drink at football game as opposed to supermarket.1. Good Value pricing= Combines quality and services at a price customers perceive asfair i.e a lower priced alternative product to an existing product oradding extra quality at same value1. Value added pricing= focuses on increasing the features that are valued by customerand pricing accordingly, this eliminates competition based onprice, poor marketing strategy
Factors which affect Pricing Internal Factors= Marketing objectives, marketing mix strategy, costs, the organisationExternal Factors= Nature of the market and demand for product, competitor prices affectother businesses, economic factors (economic state, government policiesand laws)Monopolistic competition – able to differentiate product therefore prices differ Oligopolistic Competition – small number of sellers and are influenced strongly by what competitors are doing in the market. Monopoly market – only one seller who is not subjected to competition
New Product Pricing Strategies There are two widely accepted strategies for pricing1. Market-skimming= Setting a premium price at the initial stage – effective whenthere is demand for the product and product has qualitydeserving of the price1. Marketing penetration Pricing= Attracts more buyers and increase overall market share,Lower prices but quantity of sales can enable the business tooffer the lower price and remain profitable
Price elasticityHow sensitive the demand for a product is in relation to price changes. Inelastic when [product is unique or a specialty product Elastic where products are of a lower quality or available alternatives are easily accessible
Price Adjustment Strategies Are important when there is some change to consumer trends or the buying situationExample: discounts and allowances might be appropriatewhen end of season stock is needed to be sold.Segment Pricing = price changes for different customersregular customer might pay difference cost than onlinecustomers.Psychological Pricing = altering pricing perception thatcustomer holds. Example: advertising $19,999 than $20,000appears less when not.
Other Price adjustment Strategies Promotional Pricing – discounts etc Value Pricing – combining quality and service Geographic pricing – absorbing or adding on transport costs to customers in remote areas International Pricing – prices changes for exporting goods