After starting a business most interesting question comes in front us the first is,
What should be its price?
The next one,
What should our marketing strategy?
Well both are inter connected your marketing strategy will be depended on the pricing strategy you have chosen. Because there are a number of types of product so as there are pricing strategy different for different products. Examples of each strategy usefulness are given side by side in each one.
1.Pricing strategy
2.What are pricing tactics?
3.Pricing tactics vs. pricing strategy.
4.Types of pricing strategy.
- competition based pricing strategy,
- cost based pricing strategy,
- value based pricing strategy.
A Pricing strategy:
A Pricing strategy or strategies are those methods which a business uses in order to identify the best price for its products or services.
Choosing a best price is good only for a business in terms of profitability but it indirectly increases the shareholders value also.
Choosing a right strategy is a very difficult task because it involves a number of factors which affects the pricing strategy. Businessmanagement ideas give a detailed perspective on it.
What are pricing tactics?
Pricing tactics are those tricks which a business uses to increase their short term profitability or to gain a short term competitive advantage.
Most common examples are giving discounts, allowances, coupons, Guarantees, etc
The above were tactics which retailers mostly use.
Pricing tactics vs pricing strategy
Pricing tactics are those tricks which business men and entrepreneurs uses in order to convince the customer to buy their product.
Whereas,
Pricing strategy is adopted to achieve a medium to long term goals to achieve marketing objectives. They have a significant impact on marketing strategy of a business.
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Types of pricing strategies:
There is a number of pricing strategies. Out of which the most common is three of them which I have discussed below.
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| source:Marketing insider |
1. Competition based pricing,
2. Cost plus based pricing strategy and
3. Value based pricing.
1.Competition based pricing:
Competition based pricing or you can say competitive pricing is a pricing strategy where price is decided on the basis of competition rather than our own cost and profit we either want to earn.
This pricing is the used to stay on top in competition.
sometimes it becomes necessary to adopt competition based pricing strategy because,
“"Pricing is actually pretty simple…customers will not literally a penny more than the value of the product."
-Ron Johnson.
2.Cost plus based pricing strategy:
Cost plus pricing strategy or markup pricing strategy is a strategy where price is decided by adding a percentage of profit to total cost incurred on the production of a particular product.
In simple terms,
Cost incurred in producing product + % of profit required
=price of the product
Fortunately, cost-plus pricing is really simple, requires few resources and hedges against incomplete knowledge by covering the entirety of a products costs.
Yet unfortunately, its horribly inefficient, because it creates a company culture of isolationism and doesn’t take a single ounce of customer perspective to determine prices.
3.Value based pricing:
one of the quotes of warren buffet-
“Price is what you pay. Value is what you get.”
-Warren buffet.
Value is the level of satisfaction the customer gets by using your product or service. Value based pricing strategy works to determine the true willingness to pay, of a target customer for a particular product by utilizing customer data.
That’s not all,
To attract loyal customers who prefers only your product over other competitor’s product you need to provide them value.
And there value plays a vital role because that will be one of the factors which customers will consider while buying products and what you asked for without switching over your products to others.
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| source:product plan |
The most common daily life example of Value based pricing strategy are-
Maggi noodles which are known for their unique taste, different flavors and variety which acts as value to customers which acts as its customer driving factor that even after increasing its prices from Rs10 to Rs12 per pack.
The other one we can take of Apple co’s products which are known for its brand name and value it provides.
Conclusion:
Pricing your product is a important part of marketing your product having a right price, increases the value of your product as well creates your brand image.
pricing strategy and pricing strategy are two different things which goes side by side.
Each pricing strategy has its own merits and demerits. The decision as to which strategy to apply depends on the type of product and the amount of profit the business want or as per its objectives or goals.
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