Pricing is one of the four elements of the marketing mix, along with product, location and promotion. Pricing strategy is important for businesses that want to succeed by finding the price point where they can maximize sales and profits.
Pricing is one of the main elements of the marketing plan. It allows a product or service to be distinguished from others with similar characteristics. Pricing decisions are derived from the underlying goals and the most appropriate strategies.
The price target focuses on three factors, namely the type, the desired level of performance, and the associated time horizon. The price goals of service organizations are profit maximization, revenue maximization, market share maximization, market share growth, return on investment (ROI), price differentiation, price stability in the market, stability of sales in the market, deterring new competitors, nurturing existing customers, etc.
The underlying factors that determine a company’s pricing decisions can be divided into internal factors and external factors. Internal factors include the company’s marketing goals, marketing mix strategy, and costs; while the external factors consist of the market environment, demand, and competition.
Pricing methods can be categorized into the following categories.
- Cost based pricing
- Competition based pricing
- Demand based pricing
- Objective based pricing
Cost-Based – With this method, the product price is determined by adding the desired markup amount to the product cost. This price calculation takes into account all costs (both variable and fixed) incurred in the manufacture of the product.
Competition based – Products where the market is highly competitive and where the difference in quality from competing brands is negligible are generally priced closer to competing brands.
Demand-Based – Prices are sometimes determined by the demand for the product. With this method, marketers try to determine the demand for the product without paying much attention to the costs and the prices of the competitors. When demand is high, they decide to take advantage and set a high price. When demand is low, they set low prices for their product. They sometimes use different prices and charge different customer groups different prices based on their perceived value. and solvency.
Objective-Based – This method is applicable to the introduction of new (innovative) products. If at the product launch stage the organization wants to penetrate the market, that is, capture a large chunk of the market and discourage potential competitors. To enter the fight, set a low price.
Alternatively, the organization may choose to scan the market, to make big profits by taking advantage of a group of customers who care more about their status or distinction and are willing to pay an even higher price for it. In such a situation, they set a rather high price in the introductory phase of their product and only market it to those customers who can afford it.