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Pricing strategies

Cost-Based Pricing:

Cost plus margin pricing: One of the simplest methods, it consists of adding a standard markup to the cost of the product.

Pricing for target utilities: it consists of fixing a price in order to obtain a certain utility that is established as a goal or objective. For example: Add 10% or 15% to your products.

Pricing strategiesValue-Based Pricing:

This strategy bases its price on the perception that customers have of the product and not on its cost. This implies that the company cannot design a product and a marketing program and then set the price, but rather that the price is considered along with the other variables of the marketing mix before establishing the marketing program.

Competition-Based Pricing:

Current rate pricing: consists of setting the price following the current values ​​of other competitors, without being based on costs or demand. It is a popular strategy when the elasticity of demand is difficult to measure. Price wars are avoided.

Sealed Bid Pricing – Used when companies bid for contracts, and base their prices on the price that their competitors are expected to set at the bidding.

Pricing Strategies for New Products:

The strategies with which the prices of the products are established vary according to the phase of the life cycle that the product is going through. It is during the introduction of the product to the market that the most difficult process occurs.

A company introducing a new copycat product must decide how it will position its product against the competition in terms of quality and price. There are four strategies for this:

  • Top-notch strategy: introduce a high-quality product at a high price.
  • Good value strategy: introduce a high quality product at an affordable price.
  • Overcharge strategy: products with a quality that does not justify their price.
  • Economy strategy: medium quality products at affordable prices.

Companies that launch an innovative product face the challenge of setting prices for the first time, there are two strategies to turn to:

Strategy to capture the highest level of the market: this strategy makes sense under a certain environment, to begin with, the quality and image of the product must justify its higher price, the costs of producing a smaller volume must not be such that they significantly affect the Finally, competitors should not be able to easily enter the market. This strategy sets the highest price in order to obtain maximum income in each market segment that is willing to pay the price, then when the sale is exhausted in that segment, lower it to a lower one by lowering the price.

Strategy to penetrate the market: a low price is set, in order to attract as many buyers as possible and thus achieve a significant market share. By having, then, a high volume of sales, the costs, therefore, will be lower, which may allow the price to be lowered even further.

Product Mix Pricing Strategies:

If a product is part of a product mix, the strategy must be changed, as the products in the product mix have related demands and costs, but face varying degrees of competition.

Product line pricing: some companies, by not developing an individual product, but a product line, set the increments between model and model, based on the difference between the cost of each one, the evaluations made by customers of different characteristics and prices of competitors.

Optional product pricing: used in products that are optional to other main ones, such as some additional accessories, this strategy has its main core in deciding which items will be part of the main one and which will be, effectively, optional.

Captive product pricing: there are products which are vital to the operation of the main product, such as, for example, printer cartridges, photo rolls, etc. It is very common that the main product, for example the printer, has a relatively low cost, or affordable, while the print cartridges carry a premium.

By-product pricing:

It is an interesting strategy for companies that raise their costs by storing their remains or manufacturing waste. Here, the company can sell its by-products at a price that at least covers the cost of storing this “waste” and thus lower the cost of its main product. A clear example is in zoos, which began to trade animal waste to the fertilizer industry.

Pricing of collective products:

Many companies offer group products, which are something like “packages” of their products, at a lower price than if the buyer purchased them individually. This strategy not only increases the profits of the company, but also encourages consumers to purchase products that, perhaps individually, they would not have purchased.

How to set pricing

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