Introduction to Pricing Strategies to Increase Sales
The pricing of any product is extremely complex and intense as it is a result of a number of calculations, research work, risk-taking ability, and understanding of the market and the consumers. The management of the company considers everything before they price a product; this everything includes the segment of the product, the ability of a consumer to pay for the products, the conditions of the market, the action of the competitor, the production, the cost of a professional website, the raw material cost or you can say the cost of manufacturing, and of course the margin or the profit margins.
Pricing Strategies Definition
The main aim of the management of every organization is to maximize profits by effectively getting the products off the shelf; let’s define and explain this better.
A pricing strategy is finding a competitive price for a product or a service. This strategy is combined with the other marketing pricing strategies: the 4P strategy (products, price, place, and promotion), economic patterns, competition, market demand, and product characteristics.
This strategy is one of the most significant ingredients of the marketing mix because it focuses on generating and increasing revenue for an organization, ultimately making a profit for the company. Understanding the market conditions and the consumers’ unmet desires, along with the price that the consumer is willing to pay to fulfill his unmet desires, is the ultimate way of gaining success in the pricing strategy of a product or a service.
Do not forget the company’s ultimate goal is to maximize profit by being in competition and sustaining the competitive market. However, to maximize profits and retain your consumer, you must make sure you choose the right pricing strategy. The correct strategy will help you attain your objectives as an organization.
Pricing Strategies in Marketing
Following are the different pricing strategies in marketing:
1. Penetration Pricing or Pricing to Gain Market Share
A few companies adopt these strategies in order to enter the market and gain market share. Some companies either provide a few services for free or keep a low price for their products for a limited period, that is, for a few months. This strategy is used by companies only in order to set up their customer base in a particular market. For example, France Telecom gave away free telephone connections to consumers in order to grab or acquire the maximum number of consumers in a given market. Similarly, Sky TV gave away its satellite dishes for free in order to set up a market for them. This gives the companies a start and a consumer base.
Similarly, few companies keep their product cost low as their introductory offer is a way of introducing themselves to the market and creating a consumer base. Similarly, when companies want to promote a premier product or service, they raise the prices of the products and services for that particular time.
2. Economy Pricing or No Frill Low Price
The Pricing Strategies of these products are considered as no low frill prices where the promotion and the marketing cost of a product are kept to a minimum. Economy pricing is set for a certain time when the company does not spend more on promoting the product and service. For example, the first few seats of the airline are sold very cheaply in budget airlines in order to fill in the airlines, the seats sold in the middle are the economy seats where, and the seats sold at the end are priced very high, which comes under the premium price strategy. This strategy sees more economic sales during the time of recession. Economy pricing can also be termed as or explained as budget pricing of a product or a service.
3. Use of Psychological Pricing Strategies
Psychological pricing Strategies are an approach of gathering the consumer’s emotional response instead of his rational response. For example, a company will price its product at Rs 99 instead of Rs 100. The price of the product is within Rs 100, which makes the customer feel that the product is not very expensive. For most consumers, price is an indicating factor for buying or not buying a product. They do not analyze everything else that motivates the product.
Even if the market is unknown to the consumer, he will still use price as a purchase factor. For example, if an ice cream weighted 100 gms for Rs 100 and a lesser quality ice cream weighted 200 gms is available at Rs 150, the consumer will buy the 200 gms ice cream for Rs 150 because he sees profit in buying the ice cream at lower cost ignoring the quality of the ice cream. Consumers are not aware price is also an indicator of quality.
4. Pricing Strategies of Product Line
Companies define product line pricing as pricing both a single product or service and a range of products. Let us take and understand this with the help of an example. When you go for a car wash, you can choose a car wash for Rs 200 or a car wash and a car wax for Rs 400, or the entire package, including a service, at Rs 600.
This strategy reflects the strategic cost of making a product popular and consumed by the consumer with a fair increment over the product or service range. In another example, if you buy a pack of chips and chocolate separately, you end up paying a separate price for each product; however, if you buy a combo pack of the two, you end up paying comparatively less price for both, and if you buy a combo of both in a higher quantity you end up paying even lesser.
For the manufacturers of the product, manufacturing and marketing of larger packs is much more expensive as it does not fetch them a good amount of profit; however, they do the same to attract more consumers and keep their interest in their products. On the other hand, manufacturing smaller packs and lesser quantities is more beneficial and fetches more profit for the product manufacturer.
5. Pricing Optional Products
It is a general approach, if the companies decrease the price of a product or a service, they do increase their price for their other available optional services. Let’s take a straightforward and typical example of a budget airline.
The prices of their airfare are low. However, they will charge you extra if you want to book a window seat; if you want to travel with your family and want to book an entire row together, you might have to end up paying extra charges as per their guidelines, in case you have too much of luggage to carry you will end up paying extra on the same, in fact, you will end up paying extra charges even if you need extra leg space in budget airlines. You can say that even if the price of the airfare is low, you will end up paying more for the extra yet mandatory services that you will require as you travel.
6. Pricing of Captive Products
Captive products have products that complement the products without which the main product is of no use or is useless. For example, an inkjet printer is of no use. Without its cartridge, it will not work and have no value, and a plastic razor will have no value without its blades. Suppose the company is manufacturing an inkjet printer. In that case, it will have to manufacture its cartridges, and if the company is manufacturing a plastic razor, it will have to manufacture blades for the same. For the simple reason that any other company cartridge will not fit into the inkjet printer, and neither will any other company’s blade fit into the plastic razor. The consumer has no other option but to buy complementary products from the same company. This increases the sales and the profit margin of the company anyways.
7. Pricing for Promotions
Promotional pricing is widespread these days. You will find it almost everywhere. Pricing for promoting a product is another very useful and helpful strategy. These promotion offers can include discount offers, unique gifts or money coupons or vouchers, buy one and get one free, etc., to promote new and even existing products. Companies adopt such strategies where they roll out these offers to promote their products. An old strategy, yet it is one of the most successful pricing strategies to date. Its success is because the consumer considers buying the product and service for the offer that the consumer receives.
8. Pricing as Per Geographic Locations
For simple reasons such as geographic location, the companies do vary or change the price of the product. Why does the location of the market affect the price of the product? The reasons can be many, well some are scarcity of the product or the raw material of the product, the shipping cost of the product, taxes differ in a few countries, differences in the currency rate for products, etc.
Let’s take a few pricing strategies examples when a few fruits are not available in a country, they are imported from another country, these fruits are exotic fruits, and they are also scarce, which increases their value in the country they are imported to, scarcity, the shipping cost of the imported product along with its quality rise its price. In contrast, it is much cheaper where it is originally grown.
Similarly, the government implies heavy taxes on a few products such as petrol or petroleum products and alcohol to increase their revenue; hence such products are expensive in a few countries or part of the country compared to the other parts. Geographic location does create a huge impact on the pricing strategy of a product as the company has to consider every aspect before they price a product. Hence the price needs to be perfect and appropriate.
9. Value Pricing a Product
Let me first be clear about what value pricing means, value pricing is reducing the price of a product due to external factors that can affect the sales of the product, for example, competition and recession; value pricing does not mean that the company has added something or increased the value of a product. When the company fears factors such as competition or recession affecting its sales and profits, it considers value pricing.
For example, Mcdonald’s, the famous food chain, has started value meals for their consumer since they have started facing competition with other fast food chains. They offer a meal or a combination of a few products at a lower price where the consumer feels emotionally content and continues to buy their products.
10. Pricing of Premium Products
Well, this strategy works just the other way around. Premium products are priced higher due to their unique branding approach. A high price for premium products is an extensive competitive advantage to the manufacturer as their high price assures them that they are safe in the market due to their relatively high price. Companies can charge premium prices for products and services such as precious jewelry, precious stones, luxurious services, cruises, luxurious hotel rooms, business air travel, etc. The higher the cost, the more the product’s value will be amongst that audience.
Conclusion
Lets us conclude by summarizing. Pricing entirely depends on the 4P pricing strategy in marketing, which is very important and it needs to be considered before pricing any product. The management of the company needs to price their products and services very effectively as they do not want to enter into any situation where their sales take a hit due to relatively high prices when compared with their competitors; neither would the company want to keep a price too low to maximize profits or enter into losses. Hence pricing needs to be done very smartly and effectively, ensuring the organization’s management considers every aspect before they price a product.
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