ALTERING PRICING STRATEGIES | PRICING STRATEGY | MARKETING
ALTERING PRICING STRATEGIES
Pricing strategy is the method use to set the best price of
the product/service after computing direct and indirect costs associated with it.
Organizations of any scale, set prices after considering production costs,
administrative costs and selling costs; but they also have to consider some
qualitative factors of market which involves consumers spending and consumption
pattern, competitors’ pricing, after sales service and discounting policy.
Pricing strategies, in order to be efficient and
worthwhile, it should be flexible and adaptive to ever changing environment and
to the market dynamics which are the changing price signals that result from
the continual changes in both supply and demand of any particular product or a
group of products.
The Price, which a business set for its product, influences
how many customers will actually purchase the products, types of consumers a
business attracts and how much sales revenue/profit is generated. Even if you
got consumers’ attraction towards your product and you have a terrific staff,
who can go to the ends of the earth to make your business successful; one bad
product pricing could be enough to ruin your business, spoils market reputation
and damage the brand equity of your product. Therefore, business owners and
marketing managers should closely consider first the key factors for setting
price of their product which leads towards their business goals.
· COSTS ASSOCIATED WITH PRODUCT
The first and most important factor while setting price of product are its costs (i.e. Cost of Production and Selling and Administrative Expenses) which starts to incur from production line till the product reaches in consumer’s hand. Business has to set price more than its cost incurred to make profit and stay in business with that product. In order to penetrate in market, business can offer product at break-even for some time, but in long-run it cannot ignore any of its associated costs.
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COMPETITION AND MARKET STRUCTURE
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A customer enjoys the choice of buying several similar products in a perfect competition market. Here consumer is indifferent to buy a product from Company A or from Company B. If a company sets prices too far above than the price of similar product of competitors, consumers may shop elsewhere and the company may ultimately lose its client.
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Prices too low in a market could also be dangerous, as it
could start a bidding war among competitors and each company shall slash
prices in an attempt to retain its market share, resulting in lower profit
margins for all companies in that industry. In such pricing
competition, the best strategy is to attain cost leadership in the market. Even if the product offered
is ordinary, but because the costs are very low competitively, prices can be
kept down and thus, company operates in low margin. During aggressive competition, a company must realize enough about the competitors’ pricing and costing structure because slashing prices may yield to unsustainable position for its own business. If the strategy is to over-run your competition by lowering your prices and they also decided the same, then you’re trapped in a race to the bottom until you are out of business. |
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· CONSUMERS
It is not only
important to think what your product’s worth is; but it is also important what
really consumers think about your product, after all they are one who will buy
your product, anyhow. Beside the features of your product and after sales
service; lower price is the factor which inter-connects your product and consumer.
Before introducing your product, the analysis of taste and perception of consumers is vital, plus what your consumers are willing to pay. A product may have innovation and latest design, but higher price may be a hurdle in creating a line of consumers. For example, there are many recognized car brands in the market like FORD, BMW, MERCEDEES and LEXUS; but for the people of a country like Pakistan, the most suited brands are HONDA, TOYOTA and SUZUKI because of their lower comparative prices.
Moreover, if a business doesn’t have different line of goods for different types of consumers or group of consumers, it can still be possible to charge different prices for the same product to different groups.
· STATUTORY CONTROLS AND REGULATIONS
Many of the industries and manufacturing units are closely regulated by statutory controls and regulations to influence the competition and to controlling hiking of prices. Therefore, businesses under strict regulatory compliances have very little power to choose their own prices.
In Pakistan,
industries manufacturing cement, cooking oils, sugar, or are in Chemical
Fertilizer Industry must have to go through mandatory Cost Audit as per their
Cost Accounting Records Order issued by Securities and Exchange Commission of
Pakistan (SECP). Therefore, the companies operating solely under the above
mentioned heads are neither under severe competition, nor they have enough room
and flexibility to alter their prices as per the market dynamics.
In some cases prices are already set by the government or, any
fluctuation thereon is monitored and decided by government and its associated
bodies. For example, Oil and Gas Regulatory Authority (OGRA) regulates prices
of Kerosene Oil, Petrol, and High Speed Diesel etc.
FIVE INSTANCES WHEN
PRICING STRATEGY CAN BE ALTERED
1) PRODUCT DIFFERENTIATION
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The more the company differentiates it’s product from that
of its competitors, the better it is in a position to increase the price of
the product. When product is differentiated, the level of indifference of
consumer towards a particular product declines; at this point level of prices
to consumer is less relevant than the uniqueness of the product. Product
differentiation creates more flexibility for the company to set the best
price. |
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2) DEGREE OF TRANSPARENCY
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In a market where company enjoys the fortunate that prices
are not readily transparent to the consumers and they cannot benchmark your
product’s price with that of competitors; then there is high flexibility to
alter the prices. Even if transparency exist, it can be covered up by
offering value-added services like packaging of goods, custom bundling or
free home delivery. |
3) PERCEPTION OF SCARCITY AND ESTEEM
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Businesses must capitalize on the opportunities to create
scarcity of their goods. Scarcity is merely not shortage of supply but,
tailoring the supply to create its value. Simultaneously, business creates a
perception to consumers that your desire can only be fulfilled with our
product and it “best fits to your needs”. |
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Here, the target consumers are the people belonging to
upper and elite class. As they have the ability to spend higher than a ordinary
consumer, sense of esteem is generated and at this point, price of product
seems irrelevant to them. |
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4) CONSUMER-PRODUCT CONNECTIVITY
Online selling of product eliminates the cost of middlemen for both, business and consumers. Therefore, product is easily and readily available to the ultimate consumer. The costs foregone due to elimination of middle marketing channels and, the time save due to it make the consumers indifferent about the price.
5) DEGREE OF FLEXIBILITY
Today’s markets suggest the company to price its product dynamically. For that, companies must make research and, collect data about their customer’s consumption habits in real time. Obviously, small businesses may not have such sophisticated techniques to compile big data of customer’s consumption/buying habits, but they can tap any useful information about their customers, individually or in aggregate, to design price and calculate the discount level.
Pricing is one of the most important part of marketing mix and can be changed very quickly so as to adjust to market dynamics. There are number of strategic approaches to pricing such as Price-Skimming, Related Product Pricing, Penetration Pricing and Demand Manipulations. It is now upon business owners and marketing managers to assess the ever changing environment and deploy a suitable pricing strategy so as to capitalize the opportunity or to avoid any possible future threats.
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