Marketing Mix: Pricing Strategies

Cost-Based Pricing:

Cost plus margin pricing: One of the simplest methods is to add a standard surcharge to the cost of the product.

Pricing for target profits: this consists of fixing a price in order to obtain a certain utility that is established as a goal or objective. For example: Add 10% or 15% to your products.

Value-Based Pricing:

This strategy bases its price on the perception that customers have of the product and not on its cost. This implies that the company cannot design a product and a marketing program and then set the price, but the price is considered along with the other variables of the marketing mix before establishing the marketing program.

Competition Based Pricing:

Current rate pricing: This consists of fixing the price according to the current values of the other competitors, without relying on costs or demand. It is a popular strategy when demand elasticity is difficult to measure. Price wars are avoided.

Sealed Bid Pricing: used when companies bid for contracts and base their prices on the price their competitors are expected to set for the bid.

Pricing Strategies for New Products:

The pricing strategies for products vary according to the life cycle phase of the product. The most difficult process occurs during product introduction.

A company that introduces a new imitator product must decide how it will position its product against the competition in terms of quality and price. There are four strategies for this:

  • First-class strategy: Introduce a high quality product at a high price.
  • Good value strategy: Introduce a high quality product at an affordable price.
  • Excessive charging strategy: products with a quality that does not justify its price.
  • Economic strategy: medium quality products at affordable prices.

Companies that launch an innovative product, face the challenge of setting prices for the first time, there are two strategies to follow:

Strategy to capture the highest level of the market: this strategy makes sense under a certain environment, to begin with, the quality and image of the product must justify its higher price, the costs of producing a smaller volume should not be such as to significantly affect profits, finally, competitors should not be able to enter the market easily. This strategy fixes the highest price in order to obtain maximum revenues in each segment of the market that is willing to pay the price, then when the sale is exhausted in that segment to lower one by lowering the price.

Strategy to penetrate the market: a low price is set, in order to attract as many buyers as possible and thus achieve a significant share of the market. By having a high volume of sales, the costs will therefore be lower, which may allow the price to fall even further.

Mixed Product Pricing Strategies:

If a product is part of a product mix, the strategy must be modified, as the products in the product mix have related demands and costs, but face varying degrees of competition.

Pricing of product lines: Some companies, by not developing an individual product, but rather a product line, fix the increments between model and model based on the difference between the cost of each one, the evaluations made by customers of different characteristics and competitors’ prices.

Optional product pricing: used in products that are optional to other major products, such as additional accessories, this strategy has its core in deciding which items will be part of the main one and which ones will be optional.

Pricing of captive product: there are products that are vital to the operation of the main product, such as printer cartridges, photo rolls, etc. It is very common for the main product, such as printer, to be relatively inexpensive or affordable, while print cartridges carry an extra charge.

Pricing of by-products:

It is an interesting strategy for companies that raise their costs by storing their manufacturing waste or scrap. Here, the company can sell its by-products at a price that at least covers the cost of storing this “waste” and thus lower the cost of its main product. A clear example is in zoos, which started trading animal waste to the fertilizer industry.

Collective product pricing:

Many companies offer collective products, which are something like “bundles” of their products, at a lower price than if the buyer were to purchase them individually. This strategy not only increases the company’s profits, but also encourages consumers to purchase products that they might not have purchased individually.

How to set the pricing

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