Marketing Mix – Price (Pricing Strategy)

Price is the amount of money that your customers have to pay in exchange for your product or service. Determining the right price for your product can be a bit tricky.

A common strategy for beginning small businesses is creating a bargain pricing impression by pricing their product lower than their competitors.

Although this may boost initial sales, low price usually equates to low quality and this may not be what customers to see in your product.

Your pricing strategy should reflect your product’s positioning in the market and the resulting price should cover the cost per item and the profit margin.

The amount should not project your business as timid or greedy.

Low pricing hinders your business’ growth while high pricing kicks you out of the competition.

There are a number of pricing strategies that you can follow. Some strategies may call for complex computation methods and others are intuitive decisions.

Select a pricing strategy that’s based on the product itself, competitive environment, customer demand, and other products that you offer.

Cost Plus

Cost Plus is taking the production cost and adding a certain profit percentage. The resulting amount will be the product’s price.

You need to consider variable and fixed production costs for this pricing method.

Value Based

Instead of using the production cost as your basis, you consider the customer’s perception of the product’s value.

The perception of the buyer is dependent on the product’s quality, the company’s reputation, and healthfulness, aside from the cost factors.

Competitive

You take a survey of the pricing implemented by your competitors on a similar product that you are trying to market and then decide whether to price your product lower, the same, or higher.

You should also monitor their prices and be able to respond to changes.

• Going Rate
  This pricing strategy is more common in selling environments where the companies have little to no control of the market price. You price your product according to the going rate of similar products
  
  
• Skimming
  You introduce a high quality product, price it high, and target affluent customers. When the market has become saturated, you then lower the price accordingly.
  
  
• Discount
  Most commonly used for old product stocks or when you’re clearing up you inventory. You take the advertised price and lower the amount. A good example is a discount coupon.
  
  
• Loss Leader
  You take the production cost and price the product even lower. The idea is to attract your customers to your store where they can be convinced to buy your other products.
  
  
• Psychological
  You may have noticed that you rarely see pricing rounded off to the nearest whole number. This is a psychological pricing strategy. $5.99 looks more attractive than $6.00 although you’re only saving a single cent.

The actual money you will receive as payment for your product can be complicated by certain pricing factors so you may receive more or less than the advertised price.

You need to determine the following in coming up with the appropriate price:

• Payment Period
  This is the length of time before you receive the payment.
  
  
• Allowance
  You give part of the advertised price to the retailer in return for promotional activities like in-store display that features your product.
  
  
• Seasonal Allowances
  You lower the price of certain products ordered during low sale seasons to attract customers to buy during non-peak times.
  
  
• Product/Services Bundles
  You put in similar or dissimilar products together and sell them as a bundle at a discounted price
  
  
• Trade Discounts
  You give price discounts as payments to your distribution channels for doing tasks like shelf stocking and warehousing.
  
  
• Price Flexibility
  You let the reseller or the sales person modify the price according to an agreed range.
  
  
• Volume Discounts
  You give discounts for wholesale buyers.
  
  
• Credit Terms
  You allow consumers to pay for your products at a later date.

Base your pricing strategy on the methods mentioned above to come up with the proper price for your product.

Remember that Price is the only P in the ‘Four Ps of Marketing’ that actually generates profit for you. The rest are cost incurring factors.

Continue to 4P's – Promotion