In addition to setting a price, a policy of developing a full fledge pricing structure is followed in order to account for the variations in prices based on geographical demand and cost, market segment needs, purchase timing, order levels, delivery frequency, guarantees, service contracts and other factors. As a result, it allows companies to adapt to varying price changes by adopting geographical pricing, price discounts and allowances, promotional pricing and differentiated pricing. Certain circumstances make it necessary for companies to follow a price penetration strategy. For instance, excess plant capacity, recession or creating dominance in the market. The aim is to increase the market share by attracting more buyers at lower entry points. Similarly, increasing prices could be more profitable for companies, but may impact quantity sold. However, care must be placed on customer’s reaction to price increase and potential longer term impact to the activity.
Effective price strategy implementation requires businesses to consider the changes in pricing strategy of its competitors. They should be in a position to predict the changes that the competitors are about to take and should be prepared to respond to them using appropriate measures. The nature of the product i.e. homogeneous or non homogeneous influences the way policies are adopted to respond to competitor’s price change. The price decision is very important in developing an effective marketing plan and can be very complex due to the ramifications of making the wrong choice. Hence, it must be considered appropriately.