Price and Major Pricing Strategies

Price

Price, in its most basic form, is just the amount of money charged for any good or service. Price, in a wide sense, is the total of all the values that a consumer forgoes in exchange for the benefit of owning or utilizing any good or service. One of the key elements influencing a customer's decision has been price. Non-price factors have grown in significance over recent years. Price, however, continues to be one of the key factors in determining a company's market share and profitability. The sole element in the marketing mix that generates income is price; all other elements are expenses. One of the factors of the marketing mix with the most flexibility is price. Prices may be rapidly modified, unlike product features and channel obligations. Pricing is also a widespread issue that many marketing executives and businesses deal with. They struggle with pricing management. Some of the managers find price to be a major problem and would rather concentrate on other aspects of the marketing mix. Smart managers, on the other hand, see pricing as a crucial strategic instrument for generating and capturing consumer value. Prices directly affect a business's bottom line. Profitability could increase by a significant percentage with a modest percentage increase in price. More importantly, as a component of a company's entire value proposition, price is crucial for generating value for customers and fostering long-lasting connections with them.

Major Pricing Strategies

The price the business charges will be in the range of very high prices needed to generate any demand and very low prices needed to generate profits. Prices are limited by how valuable consumers think a product is. Customers will not purchase a product if they believe that it is overpriced compared to its worth. Price floors are set by product costs. The business's profits will undoubtedly suffer if it priced the goods below what it actually costs. The company must take into account a variety of internal and external elements when deciding on a price that falls between these two extremes, including the pricing and marketing strategies of competitors, the overall marketing strategy and mix, and the nature of the market and demand.

Customer Value-Based Pricing

Buyers will ultimately determine whether a product's price is fair. Like other marketing mix selections, pricing decisions must begin with the value of the consumer. Customers exchange something of worth (the price) for the product when they purchase it (the benefits of having or using the product or services). Understanding how much value customers place on the benefits they receive from the product and setting a price that reflects this value are essential components of effective, customer-oriented pricing.

Customer value-based pricing is the key to price is the customer's impression of value, not the seller's cost. Value-based pricing prohibits the marketer from creating a product and a marketing strategy before deciding on a price. Before establishing any marketing program, price is taken into account together with the other components of the marketing mix.

Even while expenses are a crucial factor in pricing, cost-based pricing is typically product-driven. The company creates what it deems to be a good product, tallies up the costs of production, and sets a price that covers costs and the intended profit. The next step is for marketing to persuade customers that the product's value at that price justifies their purchase. If the price ends up being excessively expensive, the company will have to accept lower markups or lower sales, both of which will lead to disappointing profits.

Value-based pricing turns this procedure around. The company initially evaluates the needs and value perceptions of the customer. The target price is then determined based on how consumers perceive value. Decisions regarding what expenditures might be incurred and the final product design are driven by the targeted value and price. As a result, before setting a price, it is first necessary to analyze the needs and value perceptions of the consumer. It's important to keep in mind that "excellent value" is different from "cheap price." A Steinway piano, for instance, will set you back a lot of money. But for consumers who already possess one, a Steinway creates significant value. Typically, a Steinway grand piano costs between $40,000 and $165,000. The most widely purchased model costs about $72,000. Anyone who owns a Steinway grand piano, however, will tell us that the Steinway experience is everything and that a Steinway's price is meaningless.

The two types of value-based pricing that we will now study are good value pricing and value-added pricing:

• Good-Value Pricing: Customers' perceptions of quality and price have fundamentally changed as a result of recent economic developments. As a result, many businesses have adjusted their pricing strategies to reflect shifting economic conditions and consumer perceptions of price. A lot of marketers now use good-value pricing tactics that provide the ideal balance of good quality and good service at a reasonable cost. This has frequently featured the introduction of less expensive variations of well-known, well-known products. Fast food establishments like Taco Bell and McDonald's provide value meals and dollar menu items to adapt to more challenging economic conditions and frugal consumer spending habits. Every automaker now provides compact, affordable automobile models that are better suited to the budgets of consumers.

• Value-Added Pricing: Value-based pricing does not just entail charging what customers want to pay or setting prices artificially low to compete. Instead, a lot of businesses use value-added pricing techniques. Instead of raising prices to compete with others, they tack on value-added features and services to differentiate their offerings.

Competition-Based Pricing

Pricing decisions made on the basis of costs, prices, and market offerings are referred to as competition-based pricing. Customers will evaluate a product's value based on the prices that rival companies charge for comparable goods. The companies should make a number of inquiries while analyzing pricing methods of rivals. First, how do the services being offered by the company stack up against those of its rivals in terms of customer value? The company may charge a higher price if buyers believe its product or service offers greater value. The company must either charge a lower price or alter customer perceptions in order to justify a higher price if buyers see less value in comparison to competing items. Another question is how strong the competition is right now and what pricing methods they are doing. The company may set lower pricing in order to eliminate weaker competitors from the market if it is up against a large number of smaller competitors that are charging excessive rates in comparison to the value they provide. The company may elect to target underserved market niches with value-added items at higher costs if the market is dominated by larger, low-priced competitors.

References

http://www1.udel.edu/alex/chapt13.html

Kotler, P., & Armstrong, G. (2013).Principles of Marketing.Chennai: Pearson India Education Services Pvt Ltd.