Before explaining pricing strategies, let’s introduce the concept of price perception . In general, the price is the monetary expression of the value that is associated with a good/service. For the client, it measures the intensity of the need. For the seller, it measures the value of the factors that make up the product plus the profit. The price creates the exchange between the two players in the market.
But the price does not only represent the amount of money needed to purchase a quantity of goods or services, the concept is broader: if a product represents a basket of attributes and benefits that can be drawn from the basic function, services or brand, then the price is the value assumed by these advantages and therefore coincides with the overall perceived utility.
But why are pricing decisions so important?
Here are all the factors that are affected:
- the price directly influences the level of demand
- determines the profitability of the firm (profit, quantity and investments)
- influences the positioning of the product on the market (perception of the brand or product with the idea of quality)
- allows for easy comparison with competing brands
- it must be compatible with the other components of the marketing mix: it must finance advertising, packaging, respect distribution. Let’s talk about price consistency here
- The influence of the economic environment: its fixation can be subject to legal, regulatory and social constraints, it is easily imitated by competitors, consumers are more attentive to the price Cryp Email List when they experience contractions in purchasing power (periods of economic crisis)
How to determine the pricing strategy: the objectives are essentially attributable to 3 points:
- Profit: ROI
- Volume: Market share, price skimming (take advantage of a high perception of value)
- Competition: alignment with competitors or price stabilization.
So also the strategies will follow the objectives and will be based on costs, competition, demand or mixed.
A. Cost-based pricing strategies:
Advantages:
- represent an essential starting point, given that a company Qatar Mobile Number List must set prices that cover costs (at least in the medium to long term)
- they are relatively simple to apply because the company has cost data
Disadvantages :
- they do not take into consideration the prices charged by the competition and the reactions of the demand, essential from a marketing point of view
- in their application there is often the risk of falling into a “circular reasoning” (the so-called kreislauf phenomenon between costs and prices)
1) The threshold price or minimum P: In other words, it allows to recover only the replacement costs of the product with a zero profit margin. A threshold price = variable direct cost is set and is applied in very limited cases:
- exceptionally large orders
- sales of unbranded products to large distributors
- sales on foreign markets
2) The technical price or break-even-price (BEP) : is the one corresponding to the break-even point, which allows direct costs and fixed costs to be covered in correspondence with a given sales volume. The technical price is therefore equivalent to the total cost. Usually the technical prices corresponding to different assumptions of quantities sold are calculated, in fact we reiterate that the technical price depends on the quantity sold, and therefore equals the total cost only for that level of activity.
