What Is Pricing Strategy Analysis?
English: Dual pricing (Photo credit: Wikipedia)
Pricing of a product or service is an aspect that always comes under scrutiny, not only from the customers but from the suppliers as well. Price analytics allow you to ensure perfection when pricing is concerned because one slip in this sensitive department and you could fall into immeasurable losses. This is why the pricing of a product requires strategies and follow up on the effectiveness of those strategies. Pricing is the way a customer identifies with a product and it is the most powerful motivator of buying.
1. What Is The Significance Of Pricing Strategy? – Your pricing strategy is the chief factor that decides your customer base and creates an image for your product. Of course, advertising and promotion have a very important part to play as well but they come secondary to pricing strategy. Simply making people notice a product or service is one thing but actually turning them into loyal customers that repeatedly buy the product is something else.
Pricing of a product speaks for its quality as well, because most people equate price with quality. If a product has a high price, it is generally assumed that its quality would be top notch whereas low priced products are seen in the opposite light, with passable quality.
2. What Is The Objective Of Pricing Strategy? – The main objective of a pricing strategy is obviously to maximize revenue and profit.
- Profit Maximization – In profit maximization, the prices are set high in the initial stages to balance the lack of volume in the later stages. Thus, short term profits shoot the roof.
- Revenue Maximization – Revenue maximization works opposite to profit maximization. In this, the prices are set as low as feasible and this makes volume skyrocket. Thus, short term profits are foregone but revenue is maximized in the long run.
- Others – There are other situation subjective objectives for formulating a pricing strategy. If the survival of a business is under question, a strategy might be made to revive it. At other times, companies might use pricing strategy to build an image of the product or service as a leader in quality.
3. What Are The Common Pricing Strategies? – These are some pricing strategies –
- Premium Pricing – In this strategy, prices are set really high because the product is new and competitors are yet to duplicate it. This is used in the initial stages of a product that boasts of new technology.
- Penetration Pricing – The prices are set really low so as to build a strong customer base that gets attracted by the modest pricing of the product.
- Psychological Pricing – This is the kind of pricing which plays on people’s psyche, like pricing a product at $9.99 instead of $10 to make it appear less.
- Promotional pricing – It involves giving a special discounted rate in the beginning to promote the product.
A company usually employs many strategies for a particular product. Different strategies used at different points in a product’s life improve profits and are sensible as well.
Category: Business
