Pricing Strategy 1 (Basic strategy)


N's spirit Basic MBA > Pricing Strategy 1 (Basic strategy)

Pricing Strategy 1 (Basic strategy)

Price is an only thing to decide profitability of a company among four factors of Marketing Mix. Therefore, price significantly affects a company's performance.


What should we think of when pricing

Market & Customer
- Who are existing or potential customers?
- Does the market grow or not?
- From whom customers buy a product and why they buy it?

Competitor
- Who are competitors?, what do the y provide and how is it different from ours?
- How is cost structure of competitors?

Company
- What is fixed cost and what is variable cost?
- Is the ratio likely to change?


Upper and lower limit of the price

Upper and lower limit of the price are normally decided by the following three points of view.

Value based pricing
Competitive pricing
Production cost based pricing

Basic Price Strategy


Value based pricing

If a company set upper limit of the price of a product based on value for customers, it can obtain maximum profit from the product. However, solid promotion is necessary to penetrate the value to customers.

Perception based pricing
In this method, price is decided based on advanced research telling price range where a product is sold well and the cost is secondly decided. PSM analysis is one of methods for price research.

Demand based pricing
In this method, price is decided based on customer segment, season, place or time slot. For example, airfare or price of a ticket for baseball is decided based on this method.


Competitive pricing

Actual market price based pricing
In this method, the price is decided based on competitor's price of a product.

Bidding based pricing
In this method, the price is decided based on bid. Buyer will trade the company that offer the lowest price.


Production cost based pricing

This method has possibility to bring profit to a company but if it is lower than customer's expectation, the company missed many customers.

Cost plus based pricing
In this method, the price is decided by adding constant profit to actual cost.

Markup based pricing
In this method, the price is decided by multiplying constant ratio by actual cost.


Factors to decide price range

Selectable price range depends on how much value products have for customers and how much is the market competitive.

Basic Price Strategy

Price range for a product in low competitive and low value area is relatively wide. This situation often happens in introduction stage. After that, when recognized value becomes higher, Price range becomes narrower. And then, when the market becomes more competitive and recognized value becomes lower, price range becomes extremely narrow.

If the market becomes more competitive but recognized value still high, price range forms awkward shape.


Types of pricing

A product that the more expensive is, the more is sold.
Examples of this kind of products are luxury products, arts like pictures or sculptures. If luxury products are sold at lower price, customers would not want them.

A product that is most sold most at moderate price
This is what is significant sold as soon as a price is less than a point. For this kind of product, it would be important to carefully know how much price is better for customers based on market research.

A product that the cheaper is, the more is sold.
This type can be applied to daily commodity.


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Marketing
Marketing Process
Segmentation
Positioning
Marketing Mix (4P)
Product Strategy
Pricing Strategy 1
Pricing Strategy 2
Pricing Strategy 3
Pricing Strategy 4
Price Strategy for Service
Innovation of Pricing Model
Channel Strategy
Promotion Strategy
Prevention of Competitor's Imitation
Brand Strategy
B2B Marketing 1
B2B Marketing 2
Estimation of Market Size
Estimation of Market Size (ATAR model)
Estimation of Market Size (Logistic curve)
Estimation of Market Size(BASS model)
Stage Gate System


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