Cardinal Stritch University
Advanced Managerial Economics
(2013SU CMB 507 MBAL 09 0015)
Pricing is a major element of marketing and can help determine how successful your product or service will be to meet organizational goals. Pricing affects product positioning as well as product features, promotion and sales strategies. There are a number of different pricing strategies organizations have to consider that should reflect its overall sales strategy and the current state of the market.
The pricing strategies that organizations can use are:
1) Developing a price
2) Pricing objectives
3) Pricing method
4) New Product pricing
5) Price discounts
Pricing is very important strategic element. The pricing strategies impinge on featuring products, channel decisions, and promotions. First, develop market strategy – which a business would evaluate and conducted a marketing analysis to identify the market segments, target market, SWOT analysis, and the market positioning. Second, marketing mix decisions – a business would define the product, contacted manufactures for distribution, and decided promotional tactics. Now the business would focus on the cost productions, price of substitute products, and prices offered by the competition. The business should be aware that competitors change their prices often. Case scenario, competitors are always looking for a competitive match, this can be an advantage and a disadvantage for the business. Competitors may strategize a different packaging of their product. It’s all up to the customer wants and needs. The demographic crowd the business is focusing on would rather price reduction then a new look to a product. What if production price are rising? If production price is rising it’s up to the business to determine the price increase without turning the customers to their competitors
In developing a price, promotional tactics and distribution should be taken into account, as well as how demand will alter at different prices. In an article in Bloomberg Businessweek, it states that 90 percent of companies simply mark up costs and do not take into account the value the product may offer compared to rival products. It argues that price should be set instead based on overall sales strategy and objectives. Two commonly known pricing strategies are skimming and penetration. Skimming is pricing policy by the producer to sell his product with initially for high price and then at decreasing rate over the time. Price skimming strategies is fundamentally a demand for the offering either by the market as a whole or by segment. High prices can be beneficial for a short period of time when the demand of the product is inflexible. Price skimming strategy is used to target the early adopters of product and service. Early adapters are less price aware since either the needs of the product is less likely than others or they recognize the product value is better. Price skimming can also further market shares, but the seller must use other pricing tactics such an economy or penetration. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented.
Another strategy is Penetration Pricing. The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. This approach was used by France Telecom and Sky TV. These companies need to land grab large numbers of consumers to make it worth their while, so they offer free telephones or satellite dishes at discounted rates in order to get people to sign up for their services. Once there are a large number of subscribers prices gradually creep up. Taking Sky TV for example, or any cable or satellite company, when there is a premium movie or