A company sets a price for its products :
- when a new product is introduced in the marketl when an earlier product is distributed in a different geographical location
- when a tender is quoted for a new contract for a product
Pricing Strategy
There are primarily nine pricing strategies which are adopted based on Price and Quality of the product. You need to decide whether you want to sell your product as a premium product or value for money or absolutely economy range with masses as your target market Table below shows nine price strategies in a grid form where Price is on X axis and Quality is on Y axis.
There are primarily nine pricing strategies which are adopted based on Price and Quality of the product. You need to decide whether you want to sell your product as a premium product or value for money or absolutely economy range with masses as your target market Table below shows nine price strategies in a grid form where Price is on X axis and Quality is on Y axis.
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| Price - Quality Matrix |
1. The diagonal strategies 1, 5, 9 can coexist in the same market if the market consists of the following three kinds of buyers:
a. Those who prefer quality
b. Those who prefer low price
c. Those who prefer both i.e. quality at a low price.
2. The strategies 2, 3, and 6 offer the most value to the customers amongst all types of pricing strategies. The objective is to offer the best possible product quality at the most affordable price to the customers.
3. The strategies 4, 7, and 8 amount to overpricing the product however the quality is not superior.
Let's take some examples to understand various pricing strategies.
In case of mineral water market pricing of Himalaya brand of natural mineral water is Premium pricing strategy over competition whereas Bisleri, Kinley or Aquafina are brands which are priced at Mid-Value pricing strategy.
In case of Ice-cream Amul followed a value for money strategy where as Baskin Robbins, through its parlours across India, has adopted Premium pricing strategy by pricing its products at a much higher price point compared to its competitors.
In case of apparel industry Peter England is an example of Economy strategy while Marks and Spencer or Color Plus adopt a Overcharging pricing strategy.
Price Setting Process
Usually, a company follows a six-step process for deciding on the pricing for its products. A step-by-step process is shown in below Fig.
Selecting the Pricing - Based on the product attributes, market conditions, and your vision about the product a pricing strategy is determined.
Determining demand - Determining pricing of a product also depends on the market demand supply conditions. The demand for a particular product is determined using market research tools.
Analysing Costs - It is the most critical point that needs to be considered before finalizing the price of your product. No one can sell product lower than its cost of production. A decent margin is a must to successfully sell a product and make money in the business.
Competitor's cost analysis - One can not price its product too high or too low than the competitors operating in that segment of the market. Either of the cases is not sustainable. If you sell at a very high price than competitors then your customer base will be very less and you will not be able to break-even. If you price your product very low then your margins would be under pressure.
a. Those who prefer quality
b. Those who prefer low price
c. Those who prefer both i.e. quality at a low price.
2. The strategies 2, 3, and 6 offer the most value to the customers amongst all types of pricing strategies. The objective is to offer the best possible product quality at the most affordable price to the customers.
3. The strategies 4, 7, and 8 amount to overpricing the product however the quality is not superior.
Let's take some examples to understand various pricing strategies.
In case of mineral water market pricing of Himalaya brand of natural mineral water is Premium pricing strategy over competition whereas Bisleri, Kinley or Aquafina are brands which are priced at Mid-Value pricing strategy.
In case of Ice-cream Amul followed a value for money strategy where as Baskin Robbins, through its parlours across India, has adopted Premium pricing strategy by pricing its products at a much higher price point compared to its competitors.
In case of apparel industry Peter England is an example of Economy strategy while Marks and Spencer or Color Plus adopt a Overcharging pricing strategy.
Price Setting Process
Usually, a company follows a six-step process for deciding on the pricing for its products. A step-by-step process is shown in below Fig.
Selecting the Pricing - Based on the product attributes, market conditions, and your vision about the product a pricing strategy is determined.
Determining demand - Determining pricing of a product also depends on the market demand supply conditions. The demand for a particular product is determined using market research tools.
Analysing Costs - It is the most critical point that needs to be considered before finalizing the price of your product. No one can sell product lower than its cost of production. A decent margin is a must to successfully sell a product and make money in the business.
Competitor's cost analysis - One can not price its product too high or too low than the competitors operating in that segment of the market. Either of the cases is not sustainable. If you sell at a very high price than competitors then your customer base will be very less and you will not be able to break-even. If you price your product very low then your margins would be under pressure.
Selecting the final price-pricing methods help business to find final pricing. Other factors which help to set final price are psychological pricing influence of other marketing mix element company's pricing policies and impact on other parties.
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