Pricing Strategy

Pricing is one of the most important elements of the marketing mix (4P's). It is the only mix which generates a turnover for the organization. The remaining 3P's are the variable cost for the organization. It costs to produce and design a product, it costs to distribute a product and cost to promote it.
Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organizations.
Pricing strategies should take into account the following factors:

• Fixed and Variable costs
• Company Objectives
• Proposed positioning strategies
• target group and willingness to pay

An organization can adapt a number of pricing strategies. The pricing strategies is based on what objectives the company has set itself to achieve.
1. Penetration pricing: Where the organization sets a low price to increase sales and market share.

2. Skimming Pricing: The organization sets an initial high price and then slowly lowers the price to make the product available to a wider market. The objective is to skim profits of the market layer by layer. This strategy is popular within the games console industry.

3. Competition pricing: Setting a price in comparison with competitors. A firm has three options: Price lower, Price the same or Price higher.

4. Product line Pricing: Pricing different products within the same product range at different price points. An example would be a DVD manufacture offering different DVD recorders with different features at different prices. The greater the features and the benefit obtained the greater the consumer will pay. This form of price discrimination assists the company in maximizing turnover and profits.

5. Bundle Pricing: The organization bundles a group of products at a reduced price. This pricing strategy is popular within supermarkets.

6. Psychological Pricing: The seller will consider the psychology of price and the positioning of price within the market place. The seller will therefore charge 99 cents instead of $1 or $199 instead of $200.

7. Premium Pricing: The price set is high to reflect the exclusiveness of the product. An example of products using this strategy would be first class airline services, Porche etc.

8. Optional Pricing: The organization sells optional extras along with the product to maximize its turnover. This strategy is used commonly within the car industry.