Explain the various pricing strategies in principles of marketing
Answers
There are several pricing strategies:
Premium pricing: high price is used as a defining criterion. Such pricing strategies work in segments and industries where a strong competitive advantage exists for the company. Example: Porche in cars and Gillette in blades.
Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved. Example: Mobile phone rates in India; housing loans etc.
Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing and advertising costs are very low. Targets the mass market and high market share. Example: Friendly wash detergents; Nirma; local tea producers.
Skimming strategy: high price is charged for a product till such time as competitors allow after which prices can be dropped. The idea is to recover maximum money before the product or segment attracts more competitors who will lower profits for all concerned. Example: the earliest prices for mobile phones, VCRs and other electronic items where a few players ruled attracted lower cost Asian players
Answer:
Explanation:
Pricing Strategies Definition
The main aim of the management of every organization is to maximize profits by effectively getting the products of the shelf; let’s define and explain this better.
Penetration Pricing or Pricing to Gain Market Share
A few companies adopt these strategies in order to enter the market and to gain market share. Some companies either provide a few services for free or they keep a low price for their products for a limited period that is for a few months. This strategy is used by the companies only in order to set up their customer base in a particular market. For example France telecom gave away free telephone connections to consumers in order to grab or acquire maximum consumers in a given market. Similarly the Sky TV gave away their satellite dishes for free in order to set up a market for them. This gives the companies a start and a consumer base.
In the similar manner there are few companies that keep their product cost low as their introductory offer that is a way of introducing themselves in the market and creating a consumer base. Similarly when the companies want to promote a premier product or service they do raise the prices of the products and services for that particular time.
The pricing Strategies of these products are considered as no frill low prices where the promotion and the marketing cost of a product are kept to a minimum. Economy pricing is set for a certain time where the company does not spend more on promoting the product and service. For example the first few seats of the airlines are sold very cheap in budget airlines in order to fill in the airlines the seats sold in the middle are the economy seats where as the seats sold at the end are priced very high as that comes under the premium price strategy. This strategy sees more economy sales during the time of recession. Economy pricing can also be termed as or explained as budget pricing of a product or a service.
Use of Psychological Pricing Strategies
Psychological pricing Strategies is an approach of gathering the consumer’s emotional respond instead of his rational respond. For example a company will price its product at Rs 99 instead of Rs 100. The price of the product is within Rs 100 this makes the customer feel that the product is not very expensive. For most consumers price is an indicating factor for buying or not buying a product. They do not analyze everything else that motivates the product. Even if the market is unknown to the consumer he will still use price as a purchase factor. For example if an ice cream weighted 100 gms for Rs 100 and a lesser quality ice cream weighted 200 gms is available at Rs 150, the consumer will buy the 200 gms ice cream for Rs 150 because he sees profit in buying the ice cream at lower cost ignoring the quality of the ice cream. Consumers are not aware price is also an indicator of quality.
Pricing Strategies of Product Line
Products line pricing is defined as pricing a single product or service and pricing a range of products. Let us take and understand this with the help of an example. When you go for a car wash you have an option of choosing a car wash for Rs 200 or a car wash and a car wax for Rs 400 or the entire package including a service at Rs 600. This strategy reflects a strategic cost of making a product popular and consumed by the consumer with a fair increment over the range of the product or the service.
Pricing Optional Products
It is a general approach, if the companies decrease the price of a product or a service they do increase their price for their other available optional services. Let’s take a very simple and a common example of a budget airline. The prices of their airfare are low however they will charge you extra if you want to book a window seat, if you want to travel with your family and want to book an entire row together you might have to end up paying extra charges as per the their guidelines, in case you have too much of luggage to carry you will end up paying extra on the same, in fact you will end up paying extra charges even if you need extra leg space in a budget airlines. You can say that even if the price of the air fare is low you will end up paying more for the extra yet mandatory services that you will require as you travel.