Pricing Strategy Discussion Paper.

Companies must use effective pricing strategies to sell their products in a competitive marketplace so they can make a profit. Business managers need to consider a range of factors, such as prices offered by competitors, costs for production and distribution, product image positioning in the minds of consumers, and determining the demographics of potential buyers.Pricing Strategy Discussion Paper.

Businesses use a premium pricing strategy when they’re introducing a new product that has distinct competitive advantages over similar products. A premium-priced product is priced higher than its competitors.

Premium pricing is most effective in the beginning of a product’s life cycle. Small businesses that sell goods with unique properties are better able to use premium pricing.

To make premium pricing palatable to consumers, companies try to create an image in which consumers perceive that the products have value and are worth the higher prices. Besides creating the perception of a higher quality product, the company needs to synchronize its marketing efforts, its product packaging and even the decor of the store must support the image that the product is worth its premium price.

Marketers use penetration pricing to gain market share by offering their goods and services at prices lower than those of the competitors. Marketers want to get their products out in the market so that the products raise consumer awareness and induce buyers to try the products.

Although this lower price strategy may result in losses for the company – at first – but marketers expect that after achieving a stronger market penetration that they will raise prices to a more profitable level.

An economy pricing strategy sets prices at the bare minimum to make a small profit. Companies minimize their marketing and promotional costs. The key to a profitable economy pricing program is to sell a high volume of products and services at low prices. Large companies, such as Walmart, are able to take advantage of this low-price strategy, but small businesses will have difficulty selling enough products at low prices to stay in business.

Price Skimming is a strategy of setting prices high by introducing new products when the market has few competitors. This method enables businesses to maximize profits before competitors enter the market, when prices then drop.

Marketers use psychological pricing that encourages consumer to buy products based on emotions rather than on common-sense logic. The best example is when a company prices its product at $199 instead of $200. Even though the difference is small, consumers perceive $199 as being substantially cheaper. This is known as the “left-digit effect.”Pricing Strategy Discussion Paper.

Businesses use bundle pricing to sell multiple products together for a lower price than if they were purchased separately. This is an effective strategy to move unsold items that are simply taking up space. Bundling also creates the perception in the mind of the consumer that he’s getting a very attractive value for his money.

Bundle pricing works well for companies that have a line of complimentary products. For example, a restaurant could offer a free dessert with an entree on a certain day of the week. Older video games that are reaching the end of their lives are often sold with a Blu-ray to sweeten the deal.

Companies need to study and develop pricing strategies that are appropriate for their goods and services. Certain pricing methods work for introducing new products whereas other strategies are implemented for mature products that have more competitors in the market.Pricing Strategy Discussion Paper.