Pricing Strategy
Introduction
Positioning of organizations is a strategic issue that helps organizations to influence the sales of their products in the market. This is because pricing affects the other marketing mix elements such as distribution, promotions, and product features. Therefore, it is essential for businesses to apply the appropriate pricing strategy that will not only compete in the market, but will increase revenues. This is because pricing strategy is the only aspect that generates a turnover for the organization and supports the other elements. Therefore, pricing must reflect supply and demand relationship of a product to make it effective (Berkowitz, 2003).
Price Development
The best pricing strategy for any product would be developing a systematic pricing method. This would entail recognition of pricing objectives and limitations, estimation of demand and income, and determination of price, volume, and income relationships. Significantly, marketing research is a vital procedure that must be conducted. The firm can also consider customer opinion of the products or services, customer welfares of the product or services, rate of manufacture or securing services or products in regards to fixed and variable costs. This will aid in understanding the business ideal, operating charges, the current pricing policies, and price opinions in the marketplace (Kerin, Hartley & Rudelius, 2013).
Successful development of the pricing strategy steps would involve selection of approximate price level, which is a reasonable starting point. In this stage, managers should incorporate approaches that will produce a desirable price for their products. This entails demand oriented pricing approach that considers tastes and preferences at the expense of cost, profit, and competition. It ensures that produces are priced depending on the demands and choices of the customers. It is at this level where application of skimming pricing offers the best turnouts. This is applicable when the firm is hosting a fresh merchandise into the market since customers are willing to test the new product in the market. Skimming pricing is an effective strategy because prospective customers are keen to purchase products instantly at the high opening price to make sales lucrative. This implies that customers interpret the high price as signifying high quality (Kerin, Hartley & Rudelius, 2013).
Factors that Influence Pricing
However, before setting a price for a product, several factors need to be considered by the business people. For instance, position of the product and firm in the market will determine whether to charge high prices or use the market prices. Another factor is the cost of manufacture, which will contribute to the profits of the business organization. In situations where the costs of manufactoring of products are higher, then the firm should adjust its prices to meet the profit objective. The other significant factor is the competitors pricing, which will influence the purchasing power of the customers and can contribute to price discrimination. It is also crucial to consider the nature of demand for products in the market since the products that customers consider being of high value attract high prices. This is because perceived value will help in setting the upper limit for the price of valuable commodities (Kerin, Hartley & Rudelius, 2013).
According to Ebony (2013), the best pricing method to use for a product will depend on organizational objectives. However, the common and cost effective method would be the cost-plus method, which considers resources used in producing the product or service. The costs incurred will help in setting the final market price to guarantee maximum profit realization. Another method is ratio pricing, which uses a multiplier to form the selling price. This method does not reflect the alleged worth or products that are similar, but have clear differences in cost price. It can lead to product pricing being unreasonably high or low depending on the outcome of the ratio (Ebony, 2013).
Price Adjustment Strategy
Price adjustment strategy that could be used when sales growth slows down in the future is offering discount and allowance pricing. This strategy helps in attracting customers to purchase the product and benefit from the granted allowance. Another adjustment strategy is price segmentation where customers, products, and time reflect different prices (Ebony, 2013).
References
Berkowitz, E. N. (2003). Marketing. Toronto: McGraw-Hill Ryerson.
Press.
Ebony, McMath. Pricing strategies: Marketing. (2013). Building the price. Words of
Wisdom.
Kerin, R. A., Hartley, S. W., & Rudelius, W. (2013). Marketing. New York, NY: McGraw-
Hill/Irwin.
