Chapter 14: Developing Pricing Strategies and Programs
Price is one of the elements in the marketing mix. Setting appropriate price for the offering is one of the main considerations of the marketers as it is the only element that generates revenue for the business instead of cost. It must be in accordance to the product, place and promotional activities. Price represents cost to the customer. Apart from this, there are several other factors that a marketer needs to consider when deciding a pricing strategy for the product or service.
Price is of critical importance for the customers when making purchasing decisions. Pricing decisions are subject to change due to the changing global market conditions and marketers have to adapt to these changes when setting prices. Setting the price is based on six steps. Firstly, it involves selecting the pricing objective. Everything we do involves accomplishing an objective. Hence, prices are set in order to: survive, maximize current profit, maximize market share, maximize market skimming or adopt product quality leadership. Secondly, marketers need to consider the demand for the product or service in order to set appropriate price. For instance, they need to find out whether the demand is price elastic or inelastic for the product or service. Thirdly, prices should be set in a way that ensures all the costs associated with the product or service is covered. Fourthly, it is also essential for the marketers to analyze the price, costs and offers of the competitor’s offerings in order to establish their product or service ahead of them. Furthermore, selecting a suitable pricing strategy is also an important step in determining the price. Pricing strategies involve: mark up pricing, target-return pricing, perceived value pricing, value pricing, going-rate pricing and auction-type pricing. The type of pricing strategy selected will affect the decision of setting price. Lastly, price is set for the product or service.