How you set your prices can have a host of implications for your business. Not every price you set needs to maximize your margins. Many small businesses use price to compete, change market share or create different revenue scenarios. Understanding how pricing affects your business model, not just your bottom line, will help you better choose price levels.
Pricing is an important strategic issue because it is related to product positioning. Furthermore, pricing affects other marketing mix elements such as product features, channel decisions, and promotion.
While there is no single recipe to determine pricing, the following is a general sequence of steps that might be followed Importance of pricing developing the pricing of a new product: Develop marketing strategy - perform marketing analysis, segmentation, targeting, and positioning.
Make marketing mix decisions - define the product, distribution, and promotional tactics.
Estimate the demand curve - understand how quantity demanded varies with price. Calculate cost - include fixed and variable costs associated with the product. Understand environmental factors - evaluate likely competitor actions, understand legal constraints, etc.
Set pricing objectives - for example, profit maximization, revenue maximization, or price stabilization status quo.
Determine pricing - using information collected in the above steps, select a pricing method, develop the pricing structure, and define discounts.
These steps are interrelated and are not necessarily performed in the above order. Nonetheless, the above list serves to present a starting framework.
Marketing Strategy and the Marketing Mix Before the product is developed, the marketing strategy is formulated, including target market selection and product positioning. There usually is a tradeoff between product quality and price, so price is an important variable in positioning.
Because of inherent tradeoffs between marketing mix elements, pricing will depend on other product, distribution, and promotion decisions. Estimate the Demand Curve Because there is a relationship between price and quantity demanded, it is important to understand the impact of pricing on sales by estimating the demand curve for the product.
For existing products, experiments can be performed at prices above and below the current price in order to determine the price elasticity of demand.
Inelastic demand indicates that price increases might be feasible. Calculate Costs If the firm has decided to launch the product, there likely is at least a basic understanding of the costs involved, otherwise, there might be no profit to be made.
The unit cost of the product sets the lower limit of what the firm might charge, and determines the profit margin at higher prices. The total unit cost of a producing a product is composed of the variable cost of producing each additional unit and fixed costs that are incurred regardless of the quantity produced.
The pricing policy should consider both types of costs. Environmental Factors Pricing must take into account the competitive and legal environment in which the company operates. From a competitive standpoint, the firm must consider the implications of its pricing on the pricing decisions of competitors.
For example, setting the price too low may risk a price war that may not be in the best interest of either side. Setting the price too high may attract a large number of competitors who want to share in the profits.
From a legal standpoint, a firm is not free to price its products at any level it chooses. For example, there may be price controls that prohibit pricing a product too high.
Pricing it too low may be considered predatory pricing or "dumping" in the case of international trade. Offering a different price for different consumers may violate laws against price discrimination.
· Pricing is an important aspect of Marketing. So it needs to be done carefully. That is why organizations formulate pricing policies and strategies to fix the price of their products.
Pricing affect the sales as well as the profit of the company. alphabetnyc.com The importance of pricing strategies is different depending upon the type of market structure because each market structure has special components that affect the pricing schema and determination of alphabetnyc.com://alphabetnyc.com · Video created by IE Business School for the course "Pricing Strategy".
In this module we will start with the importance of pricing, especially for the bottom line. Having this in mind, and after showing how pricing is the most important driver of alphabetnyc.com · Marketing professionals can’t ignore importance of pricing strategy in business.
Here’s how to make the responsibility alphabetnyc.com://alphabetnyc.com · Your pricing strategy is the exchange rate you put on all the tangible and intangible aspects of your business. Value for alphabetnyc.com://alphabetnyc.com · Pricing and Demand.
When demand increases for an item, its price rises as the competition to acquire it increases. This is an ideal situation for a marketer; when there are many eager buyers, the alphabetnyc.com