Strategies of Pricing in Marketing

4 Best Strategies of Pricing in Marketing

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March 4, 2023
by DEEPAK RAJ
7 min read
11 Comments
Strategies of Pricing in Marketing

Pricing involves determination of the price of the product. It plays an important role in the marketing of the goods and services. It is considered as an effective weapon during stiff competition as firms compete with each other on the basis of price. Let’s see the 4 Best Strategies of Pricing in Marketing

Price Strategies in Marketing

  • Price is a significant element in the marketing mix. ‘Marketing mix’ is referred to as the controllable marketing tools through which a firm is able to produce a response for the targeted market. In the marketing mix, price has its own place which determines a customer’s payment to acquire a product Pricing strategy is beneficial in terms of diverse purchasing behavior of various customers.
  • Secondly, high degree of demand and uncertainty create more revenue. On the other hand, rigidity of production boosts the organization to play with prices. The effectiveness and relevance of different pricing strategies such as penetration strategy and price differentiation strategy can be determined by its outcome in terms of sales and customer satisfaction. Organizations can apply any of these strategies to achieve their pricing objective.

What are Pricing Strategies?

What are Pricing Strategie

Pricing is one of the major elements of the marketing plan. It enables to differentiate a product or service from another one of similar characteristics. Pricing decisions derive from the underlying objectives and also best-suited strategies. The elements of pricing objective include profit maximization, revenue maximization, quality leadership, quantity maximization and also survival.

Factors influencing pricing decision

Price of a product depends upon:

  1. Cost of production
  2. Segments targeted
  3. Ability of consumers to pay

4. Market forces of demand and supply.

  • The underlying factors that determine a company’s price decisions can be categorized as internal factors and external factors.
  • Internal factors include company’s marketing objectives, marketing mix strategy, and costs; whereas external factors consist of market environment, demand, competition.

Price Strategies

  • The most common price strategies are high and low price strategies, and adjustable strategy. The high price strategy entails price setting on the basis of the value of the product as perceived by customers. Adjustable strategy identifies strategies like price discrimination strategy, price skimming, discount strategy, penetration pricing and also yield management.
Market segmentation:
  • Market segmentation or price discrimination strategy depends on customers’ different levels of needs and also their purchasing ability. Among the other popular pricing methods, discount strategy indicates discount sale which states that a set of items are sold for a limited period.
Other Strategies
  • Another popular pricing strategy is price skimming, where a product is sold at a high price initially but is lowered with time. On the contrary, penetration pricing refers to a setting where initial price is lower than later as this type is focused on cost reduction over time and discouragement of competitors’ entry. Lastly, yield management or revenue management focuses on sales anticipation as well as competitors’ behavior in order to generate revenue.
  • There are other strategies like product mix Price Strategies and price adjustment strategy. Product mix pricing strategy can further be distinguished into many types like product line pricing, optimal product pricing, captive product pricing, byproduct pricing, product bundle pricing. Finally, price adjustment strategies can take various forms like discount and allowance pricing, segmented pricing
  • Psychological pricing, references prices and promotional pricing. Two types of pricing strategies, limit pricing and predatory pricing are used by firms in a competitive market. The former is used in the early stages of a product to competitive entry and the latter is executed after the entry. These two types of pricing are based on signaling theory through which it is understood that in limit pricing, the cost structure of the product or service is low and also it intends to protect the market through sacrifice.

Best Strategies of Pricing in Marketing

Price Strategies

The following are the Strategies of Pricing in Marketing

  1. Cost plus pricing method
  2. Penetration pricing method
  3. Skimming pricing method
  4. Variable pricing method

Cost Plus Pricing Method:

  • Cost plus pricing is the most common and simple pricing strategy. As per this strategy the price is determined by calculating the sum of the cost of production and also appropriate profit.
  • However, this strategy does not stress on the optimum utilization of all available resources. This strategy completely depends on the manufacturing estimates. Costs associated with manufacturing are calculated to
  1. Justify the planned capital expenditure
  2. Calculate the cost of production for a new or re-designed product
  3. Optimize the use of high cost areas.
  • The estimation is done by computing the factors like volume of resources, the cost associated with these resources and the duration for which these resources will be used.
  • When it is required to justify the capital expenditure, the depreciation and cash-flow analysis is done using accounting methods. Thus, Cost Plus Pricing Method is one of the best Strategies of Pricing in Marketing

Penetration Pricing Method Penetration Pricing:

  • This strategy requires the price to be set to a value lower than the market price. This is usually done to acquire new customers.
  • The whole idea is that the customers will switch to the new brand due to the lower prices.
  • This is a short-term strategy and is usually used to increase the market share or sales volume rather than to incur huge profits. Once the required market share is achieved the prices are increased to regular values.

Skimming or Creaming Pricing Method:

  •  In skimming or creaming, few goods are sold at a high price so as to reach the break-even point as quickly as possible.
  • The sale of products will last for a limited period of time so that most of the investment is recovered. The organization has to let go of the higher number of sales in this case.
  • This strategy is usually employed in the electronics industry, for example, smart phones.
  • This strategy targets the early adopters, who have lower price-sensitivity, which can be because of their need for the product out-weighs their
  1. Need for economics
  2. More value attributed by them to the product
  3. Having high disposable income
  • Once skimming is period is over, the seller must revert back to other pricing strategies like economy or penetration

Variable Pricing Method:

  • In this, the same goods or services are sold at different prices to different customers.
  • This is usually found in cultures where dickering is common or where bidding or auction is taking place.
  • Even in place where fixed pricing is standard, the prices may vary depending on the volume of the products purchased by the consumer.
  • To avail this the customers must comply with certain criteria.
  • The following are examples.
  1. Siblings joining the same school get lower fee compared to others.
  2. Bulk packing’s have lesser unit price as compared to the single packing or small volume packing’s
  3. The more the bargaining power of the customer, the lesser will be the price.
  4. Depending on the consumer’s ability to pay, the price might vary.

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About the author

DEEPAK RAJ

Writing is my Niche with which I like to share my thoughts and values. I believe words are the most powerful tool which can even Start/Stop a War. By using Motivating & Positive words, we can inspire others. By using Harsh words, we can hurt others. As it is proven Scientifically (Newton's Law) & Spiritually (Karma), "For every action, there is an equal & Opposite Reaction." So, Stop Hatred & Start Spreading love.

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