Market conditions are forcing entrepreneurs to pay more attention to marketing theory. Their practical application allows the company to be competitive and build the right development strategy.
The main strategies and methods of pricing in marketing: overview, description and features
One of the priority goals of marketing is the study and clarification of the needs of the clientele. The data obtained will help to develop the product that most suits the client and ensures the profitability of the business.
Another priority is product orientation. Studying the market, competitors and their role in solving customer needs helps to improve the properties of the product and to win in the struggle for wallets, minds and hearts of customers.
The general economic approach, in which the price of a product is determined on the basis of cost and expected profit, may not be effective in all cases. In addition, applying only such an approach is a failure if other similar offers are on the market. Under such conditions, there is a need to consider a separate branch of marketing - pricing methods in marketing.
What methods exist?
In general, 6 methods are distinguished, 2 of which are focused on cost accounting for the production of goods and the remaining 4 - taking into account market factors.
Which is advisable to use if the product is new? When determining the value of a new product, the principles of enterprise management should be taken into account. In any case, one criterion remains unchanged - the price of the product should provide the maximum level of potential income for the company.
The methods described below have individual characteristics. At the same time, each of them is not without flaws. The company must decide on the use of one or another method.
Cost methods for determining the value of goods
Pricing methods in cost-based marketing involve determining the final cost by adding the sum of production costs and the amount of the expected profit of the company. A prime example is the full cost method.
To obtain its coefficient, it is necessary to establish the sum of variable and fixed costs. Next, add the level of expected profit. The next paragraph indicates the number of products that need to be divided into previous indicators.
The choice of pricing method in marketing in such a simple way is widely used by many Russian companies. There are several weighty arguments for this:
- It is easier for a company to obtain data on its own costs than on the needs of consumers.
- Price competition will be lower even if competitors use this method.
- It is easy to determine the minimum mark of the value of the product.
- Realization at the price received allows us to compensate for production costs.
- Provides a rate of expected profit.
For objectivity, it is important to mention the shortcomings. The main one is that the company will not have an incentive to reduce costs. The other side - competition remains unaccounted for, which gives a chance to use this gap to competitors in their favor, offering the same products at a lower price. Based on this, we can say that this method is suitable for those industries where there is little competition.
Marginal cost method
Pricing methods in marketing involve the use of marginal cost accounting criteria. The following input data are taken into account:
- The maximum amount of production costs.
- Product profitability in% terms.
- Cost of goods.
The calculation is simple: variable costs per unit of goods are determined, coefficients covering these costs are added to them, plus the rate of potential profit.
Direct cost accounting
Marketing pricing methods as a tool for determining the optimal cost of goods offer another way: variable costs plus profit in the form of an allowance for each unit of production. The question arises of accounting for fixed costs. This article will be taken into account in the amount that arises from the sale less the amount of variable costs.
Return on Investment Method
In the list of the main pricing methods in marketing, the investments made in the production of goods are also taken into account. It is important to remember that marketing takes into account not only the amount of investment, but also the repayment amount. Any investment involves a dividend. That is, the repayable amount should definitely be greater than the amount of the investment.
The same rule applies to domestic investment, that is, when a company invests in marketing campaigns and measures. Thus, the company intends to increase its income. These values should be taken into account in the value of the goods.
In marketing, there is a special formula for calculating the amount of return on investment. According to it, the calculations are made in the following order:
- Amount of investment.
- The volume of revenue.
- The total amount of gross profit and cost of production.
- Return on investment and investment coverage.
Having taken from the second paragraph the cost of sales and the amount of investment coverage, we find the amount of return.
Target Value Method
With this method, the cost of the product is taken into account in the calculation base, taking into account the estimated sales volume. However, this method has a significant drawback - it does not take into account the needs and capabilities of consumers, but focuses on the interests of the entrepreneur. In conditions of increased competition, the use of this method may not meet the expectations of the company and even, conversely, can lead to stagnation of the goods.
Price increment method
Marketing pricing strategies and methods include various approaches. One of them is the multiplication of the purchase and sale prices of goods by a special raising factor. For the company, this method is advantageous in that it does not require the cost of researching demand, since in this case it does not matter.
In general, pricing methods in marketing are briefly divided into two types: a reference to consumer demand and a reference to the value of the product. The premium method is of the second type.
When promoting such products, a company needs to know not the volume of demand, but the consumer’s perception of the product, its value and the approximate amount that the customer is willing to pay for it. Based on such data, the marketing company will use non-price methods of influencing the client, aimed at creating a specific image of the product.
With this approach, the costs of the company serve only as an economic limiter, below which it is impossible to lower the cost of goods. However, there are cases of dumping. This is done in order to oust competitors from the market and can be used as a temporary strategy. In the long term, this method is not justified, since the value for goods at high price categories is precisely the high cost.
A vivid example of a similar marketing move is the cost of a cup of coffee in a eatery and in a restaurant. As the analysis of marketing pricing methods and strategies shows, in the second case, the consumer is willing to pay several times more only for a special atmosphere.
Market pricing methods
This marketing section has three main methods:
- Orientation to consumer opinion.
- Focus on the strategies of competitive companies.
- Normative and parametric approach.
The first type of methods is divided into the following types:
- Assessment of the most acceptable cost.
- Focus on demand.
- Limit analysis.
The main methods of pricing in marketing for targeting competitors suggest the following subspecies:
- Targeting the market leader.
- Based on the usual prices for buyers.
- Tender type.
- Auction method.
- Reference to market prices.
The normative-parametric approach implies the following types of calculation:
- The method of specific indicators.
- Aggregate method.
- Regression analysis method.
- Point method.
The value of pricing in marketing is individual for each company. She is absolutely free to choose. But there are factors that must be considered when pricing. One of the essential ones is the life cycle of a product. If it has long been known to customers and has its place in the market, then sliding, elastic, predominant or consumer methods are applicable.
New products will be successful if you apply the “skim cream” method, a reference to the leader, psychological techniques or a method of penetrating the market.
Practice in Russia
The entrepreneur has the right to independently determine the price using any available pricing method. In general, two approaches to pricing can be noted: determining individual prices and setting a single cost.
The pricing process is the only marketing measure that does not require cash investments. But at the same time, experts believe that the pricing policy of many companies is not well developed and there are significant shortcomings. The most common errors:
- Lack of adaptability of prices to changing market conditions.
- Excessive actualization of costs in pricing.
- Prices are not tied to other elements of marketing.
- Prices are not differentiated by a separate product line.
The most advantageous position is occupied by the price of innovation. As you know, a simulated product can not boast of freedom in choosing prices. In contrast, innovative products can afford to use the tactics of “skimming,” penetrating the market or benchmarking the value of the product.
Asking the question of what are the methods of marketing pricing, one should especially note the popular pricing policy - the strategy of low prices. This method is universal. It pursues several goals at once: rapid introduction into the market, crowding out competitors' goods and expanding the sales area. Usually, after a product is fully introduced into the market, a pricing policy is revised. Two options are possible here: the application of another targeted policy leading to an increase in the value of the goods, or an increase in profit due to sales. Following this logic, applying a low price strategy is an economically viable step.
When can I apply low prices?
At the same time, when implementing a strategy of low prices, some external parameters should be taken into account:
- The market is sensitive to price changes.
- As the volume of sales of products increases, costs should tend to decrease.
- The presence of fierce competition in the market.
The presence of such factors in the field of the company is guaranteed to lead to the success of a low-price strategy.
When can you sell more?
The high-pricing strategy also pays off economically. But some conditions are necessary. First of all, they relate to the product itself. It should either be a novelty in the market, or be protected by patents or the result of high-tech processes.
From the market side, such conditions as the formed image of a company or product, the presence of a sufficient number of target audience, the highest level of competitiveness and small production volumes are important.
Once a product has a strong market position, a company can develop products in a lower price category. This is achieved by expanding sales volumes and increasing profits.
Conclusion
It is generally accepted that a product will be profitable if its final cost covers all the costs of its production. This is too general a statement. But the potential of each market is much deeper. Marketing methods help to recognize and activate it. And their skillful use is half the success for any company.