Pricing Strategy

Topics: Marketing, Porter generic strategies, Pricing Pages: 12 (3976 words) Published: May 6, 2012 Different Types of Pricing Strategy
Pricing is one of the four elements of the marketing mix, along with product, place and promotion. Pricing strategy is important for companies who wish to achieve success by finding the price point where they can maximize sales and profits. Companies may use a variety of pricing strategies, depending on their own unique marketing goals and objectives. Premium Pricing

Premium pricing strategy establishes a price higher than the competitors. It's a strategy that can be effectively used when there is something unique about the product or when the product is first to market and the business has a distinct competitive advantage. Premium pricing can be a good strategy for companies entering the market with a new market and hoping to maximize revenue during the early stages of the product life cycle. Penetration Pricing

A penetration pricing strategy is designed to capture market share by entering the market with a low price relative to the competition to attract buyers. The idea is that the business will be able to raise awareness and get people to try the product. Even though penetration pricing may initially create a loss for the company, the hope is that it will help to generate word-of-mouth and create awareness amid a crowded market category. Economy Pricing

Economy pricing is a familiar pricing strategy for organizations that include Wal-Mart, whose brand is based on this strategy. Aldi, a food store, is another example of economy pricing strategy. Companies take a very basic, low-cost approach to marketing--nothing fancy, just the bare minimum to keep prices low and attract a specific segment of the market that is very price sensitive. Price Skimming

Businesses that have a significant competitive advantage can enter the market with a price skimming strategy designed to gain maximum revenue advantage before other competitors begin offering similar products or product alternatives. Psychological Pricing

Psychological pricing strategy is commonly used by marketers in the prices they establish for their products. For instance, $99 is psychologically "less" in the minds of consumers than $100. It's a minor distinction that can make a big difference.

------------------------------------------------- Business-plan marketing strategy includes the sales and promotional methods you will use for procuring customers. Significance

Business-plan marketing strategy should include at least a three-year sales forecast for your company. Project monthly sales for your business during the first year, the Small Business Administration advises. Make quarterly projections for your second and third years. Besides revenue projections, factor all business expenses such as labor and production costs. Subtract expenses from your anticipated revenue to derive annual profit estimates. Calculating your profit will better help you determine when your company will break even. Identification

Include a detailed competitive analysis as part of your business-plan marketing strategy. Order secondary research information on your competition and industry. Secondary research information will help you determine the market share and business strategies of key competitors. Market share is the percentage of total sales a competitor earns in an industry. You can obtain secondary research information from market research firms such as the NPD Group and Forrester Research. Conduct a SWOT (strengths, weaknesses, opportunities, threats) analysis for your company. Write down strengths and weaknesses of various competitors and compare them to your own company's strengths and weaknesses. Look for opportunities where you can take advantage of your strengths. For example, you may have a high quality rating versus other competitors, which you can use as a major selling point....

References: An up-to-date critique of generic strategies and their limitations, including Porter, appears in Bowman, C. (2008) Generic strategies: a substitute for thinking? [1]
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