Pricing Strategies

A key part of the marketing mix that needs to be

managed intelligently
The pricing decision is one of the most important
issues the marketing executive has to face.
Its impact is usually reflected in the quantity of
the product sold, the contribution to profits that
the product will make and also the strategic
position of the product in the market place.
Pricing has caused controversies especially in
relation to the role that costs should play in
determining price.
Traditionally the price of a product is based on
the identification of the costs associated with
manufacturing, marketing and distributing the
product with the subsequent addition of a mark
up to reflect the desired profitability.
Products can be over priced due to arbitrary
loading of production and other overheads
Leaves no room for strategic thinking

Pricing strategies
Marketers in contrast look at price in
terms of its influence on demand
In selecting the price a number of
factors are considered by marketers
corporate objectives and the product
portfolio, the PLC, the products
position in the market, competitors,
costs (own and competitors),
channels of distribution

Pricing strategies
Marketers have always considered the following
situations in their pricing strategies:
1. Premium Pricing use high price where there
is uniqueness about the product or service.
Approach used where a substantial competitive
advantage exists.
High prices are charged for luxuries e.g. Meikles
hotel rooms, cruises etc.
2.Penetration Pricing price charged for Q is set
artificially low in order to gain market share.
Once achieved the price is increased, approach
used by Telecel to attract new clients

Pricing Strategies
3. Economy Pricing a no frills low price
The cost of marketing and manufacture are
kept at a minimum. Supermarkets often
have economy brands for soups, spaghetti
etc.
4. Price Skimming Charging a high price
because you have a substantial competitive
advantage. Advantage not sustainable
because high price tends to attract new
competitors into the market and the price
inevitably falls due to increased supply.

Pricing strategies matrix

Quality
Low

High

Economy
Low

Penetration

Skimming
High

Premium

Price

Other approaches to pricing

1. Psychological pricing approach used when
the marketer wants the consumer to respond
on an emotional rather than rational basis e.g.
99cents
2. Product Line pricing e.g. Car washers can
charge basic wash to be $2, wash and wax $4
and the whole package becomes $6.
3. Optional product pricing companies will
attempt to increase the amount the customer
spends once they start to buy e.g. Optional
extras like in Creamy Inn, Pizza Inn
4. Product bundling pricing sellers combine
several products in the same package and this
helps to move old stocks as well. E.g Videos
and CDs are often sold using the approach

Other approaches to pricing

5. Promotional Pricing pricing to
promote a product is common e.g.
BOGOF (Buy One Get One Free)
6. Value pricing approach used where
external factors like recession or
increased competition force companies
to provide value products and services
to retain sales e.g. Value meals at
Nandos, Chicken Inn, McDonalds

Other considerations
1. Product position price will have to take into
account the marketing profile you are trying to
establish for your product. If yours is the biggest,
the best, the most technologically advanced the
price has to echo the fact. If target is high
income customers the price should reflect that
exclusivity
2. Current competition - analyse the prices
charged by your competitors for their versions of
your product or service. Will these influence your
ultimate choice of price?
3. Potential competition consider the extent to
which your chosen price might either attract or
repel competitors. If you can get away with
charging high prices and making correspondingly
high margins then it will not be long before
others become interested in your sphere.

Other considerations
4. Channels of distribution if your business
requires you to use intermediaries to reach
your customers, then in return for their
services they will expect a reward in the
shape of a mark-up or margin on the goods.
Price charged at the factory gate has to be
profitable for you yet still allow the
intermediary a fair margin without leading to
an excessively high price for the ultimate
consumer.
Trade discounts, quantity discounts,
promotional discounts and cash discounts are
used

Other considerations
5. Portfolio matrix a different strategy is
required according to which quadrant housed
your different products, hence prices can be
selected as follows:
Question marks price competitively to get
market share
Star price to maintain/increase market share
C/Cow stabilise or even raise the price
Dog raise price
6. The PLC the chosen products position on its
life cycle will also be significant when calculating
its price.

PLC
Introduction either price low to capture market
(price penetration) or if there is genuine novelty
or innovation associated with the product price
high in recognition of its prestige value.
Growth price competitively to gain market
share
Maturity price low to get market share
Decline raise price
7. Differential benefits if your product or
service provides differential customer benefits
which your competitors do not provide, then
you could justify a higher price and gain the
reward from higher revenue