Pricing Strategies

Today, businesses face a fierce and fast-changing pricing environment. Customers that seek value have put enormous amounts of pricing pressure on many companies. Like everything else in marketing, good pricing starts with customers and their perceptions of value. Persuading customers that paying a higher price for the business’ brand is justified bu the greater value they gain.

What is a price?

  • To keep it brief, price is the amount of money that is charged for a product or service. More broadly, price can be defined as the sum of all values that customers give up to gain the benefits of having such product or service.

Setting the ‘right’ price is one of the most difficult tasks for marketers as several different factors come into play. However, finding and implementing the right price strategy is critical to success.

What is a pricing strategy?

  • Pricing strategy is a marketing term that refers to the method businesses use to price their products or services. Almost all businesses, regardless of size, base the price of their products and services on production, labour and advertising expenses and then add on a percentage to make a profit.

The price that a business charges will fall somewhere between one that is too high to produce any demand and one that is too low to produce a profit. The table below illustrates the major considerations for businesses when setting a price.

Considerations in setting price strategy

There are considered to be three major pricing strategies, which include customer value-based pricing, cost-based pricing and competition-based pricing. Each major pricing strategy also has variations that are full explored below.

What is Customer Value-Based Pricing?

  • Customer value-based pricing uses buyer’s perceptions of value, no the seller’s cost, as the key factor in pricing. Value-based pricing means that the marketer cannot design a product and marketing programme an then set the price. Price is considered along with other elements of the marketing mix before the marketing programme is set.

Model of Value-Based Pricing:
value based-pricing

What is Cost-Based Pricing?

  • Cost-based pricing involves setting prices based on the costs for producing, distributing and selling the product plus a fair rate of return for the effort and risk that is involved. Read more on cost-based pricing.

Model of Cost-Based Pricing:
Cost-Based Pricing

What is Competition-Based Pricing?

  • Competition-based pricing involves setting prices based on competitors’ strategies, costs, prices and marketing offerings. Customers will base their judgments of a product’s value on the prices that competitors charge for similar products

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