Pricing Strategy

MM 8
3rd Year Marketing Management
Pricing Definition
 Pricing is a term used to describe the
decision-making process before you value a
product or service.
 Your price must communicate how much you

care about your brand, product, and

customers to your potential consumers. It’s
one of the first things a consumer considers
when deciding whether or not to acquire your
goods or service. That’s why a precise
estimate is needed.
Pricing Strategy Definition
 Pricing strategies are the methods and procedures companies
employ to determine the rates they charge for their goods
and services. Pricing is the amount you charge for your items;
pricing strategy is how you calculate that number.
 Pricing strategy can encompass anything from:

 The state of the market

 Competitors actions
 Account segments
 Profit margins
 Input costs
 The financial capability of the average consumer
 Amounts spent on manufacturing and distributing products
 Variable costs
What Is The Importance Of Pricing?
 A successful pricing strategy helps you strengthen
your position in the market by earning your clients’
confidence and bringing your company closer to
achieving its objectives.
 Pricing strategies can be important for various
reasons, but those reasons might differ from
company to company.
 Pricing strategies aren’t necessarily about profit
margins, despite common opinion. For example,
you can want to keep the price of an item or service
low to keep your share of the market and keep
competitors out.
What Are The Types Of Pricing
Strategies?
 1. Cost-Plus Pricing Strategy
 One way to price a product is to add a fixed
percentage to the manufacturing costs for each
unit. This pricing technique is known as “cost
plus” or “markup pricing.”
 As a seller, you would calculate the fixed and
variable expenses incurred in making your
goods and then apply the markup percentage to
that cost. This approach is popular since it’s
simple to defend and almost always results in a
level playing field for all participants.
 2. Competitor-Based Pricing Strategy
 Competitive pricing is the practice of setting your product or
service prices based on the pricing of your competitors in your
market or niche rather than on your company’s costs or desired
profit margins. Sometimes this means just raising your prices, but
you also can offer better terms of payment as an alternative.

 3. Value-Based Pricing Strategy

 The method of determining your rates, known as value pricing,
considers how much your customers value what you provide and
adjusts your prices accordingly. You must employ a marketing
mix to retain sales and deliver more value to your clients in the
face of increased competition or a recession.
 Due to the perceived worth of the product or service, buyers flock
to this price strategy over the competition. Customers don’t care
how much it costs a corporation to manufacture a product; what
matters is that the client believes they are getting a good deal
when they buy it.
 4. Loss Leader Pricing Strategy
 Loss leader pricing is a marketing strategy where one or
more retail goods are chosen and sold below cost – at a
loss to the retailer – to entice customers. Loss leads are
items offered at deeply discounted rates to draw
customers into the business.

 5. Penetration Pricing Strategy

 The penetration pricing strategy aims to draw customers
by providing products and services at lower costs than
rivals. This tactic can take attention away from competing
firms and lead to long-term contracts by promoting
brand recognition and loyalty. However, in the long run,
brand recognition may lead to higher earnings and help
small businesses stand out from the crowd.
 6. Everyday Low Pricing Strategy
 Retailers use “everyday low pricing” to maintain perpetually low
prices for their items rather than special promotions or sales.
 As a result, the daily low pricing strategy aims to optimize sales
by always giving the lowest prices on the market and anticipating
huge sales volumes.

 7. Economy Pricing Strategy

 Economy pricing aims to get the most price-conscious customers
to purchase the product. Because they don’t have to pay for
additional promotion or marketing expenditures, businesses may
price their products according to their manufacturing value.

 8. Premium Pricing Strategy

 Businesses that charge premium prices do so because they have
a specific product or brand that no one else can match. Suppose
you have a significant competitive edge and know you can charge
a higher price without being undercut by a product of
comparable quality. In that case, you should consider using this
technique.
 9. Skimming Pricing Strategy
 Price skimming is a dynamic pricing strategy businesses use to increase
sales of new goods and services.
 Price skimming is a strategy usually employed at a new product’s debut.
This strategy aims to maximize income to the greatest extent possible
when customer interest in the product is strong, and your company faces
low competition.

 10. High-Low Pricing Strategy

 High-low pricing is a strategy where a business focuses on marketing
campaigns to entice customers to make purchases. For example, a
company charges a high price for a product and then lowers the cost
through promotions, markdowns, or clearance sales. A product’s pricing
fluctuates between “high” and “low” in a certain amount of time with this
method.

 11. Dynamic Pricing Strategy

 Dynamic pricing involves charging variable costs depending on who or
when you purchase your goods or service. Flexibility in pricing is one of
this technique’s essential features, which considers supply and demand.
 While dynamic pricing is widespread in e-commerce and transportation, it
isn’t appropriate for all businesses. The greatest dangers lay in
implementing variable prices with price-sensitive products and services.
How to set up a value-based pricing
strategy
 1. Research your target audience
 How is the value of a product determined? Through

meticulous research. Unfortunately, there is no

simple price-value equation that you can apply
across the board. Instead, you have to rely on
research, which is the foundation of every value-
based pricing formula. 
 You can start in a few different places, but in a

competitive market, perceived value is determined

by consumers. That’s why we recommend beginning
with researching your target audience for a clear
understanding of how the product affects their lives. 
 2. Research your competitors
 Many companies believe that value-based pricing

is all about the value of their product. But the

reality is that your product’s value is only relative
to the market, and you need competitor pricing
information to build a value-based pricing
strategy. If your product is €900 more expensive
than your next closest competitor, you’d better
have some justification. If there isn’t enough value
created in the product (and its marketing),
consumers will opt for the cheaper alternative.
 3. Determine the value of your differentiation
 You’ve done all the research. Now it’s time to put a

quantitative value on the different features you uncovered

in step two. 
 To do this, ask yourself how much the key features on your

product are worth. How much is extra screen space worth?

What about a longer battery life? What about better quality
materials? Assign an amount that reflects how much that
feature is worth.
 You don’t need to assign value for every single product

feature; you only need to calculate the value of the features

that make your product different. This is a brilliantly
simple way to avoid doing a lot of unnecessary work. 
 4. Craft marketing and pricing campaigns
that meet your target market’s needs
 After understanding the needs of your

audience, your competitor’s alternative

products, and where your product stands,
you can create a value-based pricing strategy
that is optimized for your product. 
