To understand the pricing strategies of the enterprise, you need to start by studying the types of market and the rules for their existence. Without knowledge of the general picture of global and local economic processes, it is not so easy to understand why this or that way of forming the value of goods is suitable in this particular case. Pricing strategies in marketing can also be selected based on the category of the product offered. For example, the value of goods from the luxury segment may depend only on the financial capabilities of the selected target audience. The same applies to some other groups of products and services.
Types of markets
The correct determination by the organization of its place in modern monetary relations can be the starting point to the heights of success. It is because of this that it is important to be able to separate segments by the presence of competitors and their capabilities.
In the modern economic environment, there are four main types of markets:
- Pure competition. In this case, there are an infinite number of manufacturing companies on the market. As a rule, consumers have to choose from similar, but differentiated trade offers. The organization will have no difficulties entering such a market, leaving it will not be difficult, and each individual company cannot have a significant impact on the price level.
- Monopolistic competition. There are many manufacturers on the market, and consumers choose from similar products or services. In this case, each organization seeks to create a unique selling proposition through design, additional options, after-sales service, a longer warranty period, etc. The impact that a single company can have on the pricing strategy of the entire market is minimal.
- Oligopolistic competition. Traditionally, up to six large manufacturing companies are present on the market. It is extremely difficult for other firms to enter the market due to difficulties or inability to gain access to raw materials and technical resources, skilled workers, and the availability of the necessary patents from oligopolists. Representatives of this type of market competition can work either separately or as groups of companies. Product prices are completely dependent on policies and goals.
- A market without competition or a monopolistic market. There is only one manufacturer on the market. Most often, this highly specialized production is usually expensive. Prices are completely dictated by a single market participant, but can be controlled by the state.
Pricing: Pricing Strategies
Firms entering the market can choose different ways of becoming, so they will give preference to those methods of value formation that are more suitable in their situation. In view of this, it is customary to distinguish six main types of pricing. A separate category also includes methods for determining the value of a new product or product for the market after rebranding.
Survival
What will be the main for the company? Of course, to ensure the survival of both the product and the company itself. Without following this basic goal, leading an enterprise to success is unlikely to succeed. This task immediately underlines the understanding by the company of the presence of competitors, similar or even similar products and the need to make every effort.
Most often, products and services are non-unique, because there are many other manufacturers of this product, and, therefore, the choice of pricing strategy may be due to a decline in demand. In this case, only a lower and more attractive price will help the company maintain its place in the market. There is no talk of profit in this case.
Profit maximization
Many companies try to achieve tremendous results in a short period of time. They set the highest possible price for the goods. However, they forget that it is important to assess the real demand for a product or service, as well as take into account all the associated costs (logistics, packaging, storage, etc.). Such inflated prices are held as long as possible. In this case, the effect of novelty or uniqueness of the product affects. But as a result of such a pricing strategy, undesirable consequences can be obtained: undermining the business image, lack of a long-term perspective, outflow of customers, lack of repeat purchases, etc.
Leadership Achievement
In order for the company to calmly be a trendsetter, it is necessary to take first place in the ranking of consumer demand. To do this, you need to win the largest possible market share. And this, in turn, will require attracting a huge number of customers, who at the same time should become regular customers or users (in the case of services).
The easiest way to attract attention is to hold promotions, reduce prices, give gifts and bonuses when buying. Such a goal is long-term, but you can forget about the big profit in the initial stages.
As you know, a twofold increase in production leads to lower costs by at least 20% from one unit of goods. Therefore, the more it is required to produce a product, the cheaper it will cost to create it for the company, which means that profits will also grow by 20-30%.
Product quality as a way to leadership
For firms with long-term plans, the development of a pricing strategy is determined by other factors. Their main task is to create the highest quality product. This is not an easy task. They are forced to create goods at the lowest price in the largest possible amount while maintaining proper quality.
The factor of "reliability" can become a key for many consumers when choosing a product. In this case, you can justify the high cost with exceptional quality or additional options. This will cover all technical costs. Goods from this price category are in great demand. Buyers are willing to pay more for a product of which they will be sure. Such goods and services also often become popular through word of mouth.
The expansion of the number of distribution channels
If it is necessary to attract new customers when changing the distribution market, for example, when expanding the range of goods of the company, the main task will be to try to achieve location and loyalty through an attractive price.
This goal becomes most difficult due to difficulties in finding a balance. After all, too low a price can cause unnecessary questions about the quality of the goods, and too high can lead to consumers not being ready to give money for an unknown product.
This pricing strategy should be very competently filed. Interest in products with an initial high price can be triggered by discounts. Cheaper products and services should be made a little more expensive, but offer all customers a nice bonus.
In many ways, this strategy is considered universal and profitable. Firstly, when the season of bonuses and discounts ends, the number of people who have stopped buying this product will decrease slightly. Secondly, it can raise the cost of cheaper products.
Return on investment
Each company invests in the production of money. Often they also have to attract outside investors or take loans. Therefore, when choosing the optimal price of the goods, the amount that was spent on reproduction is taken into account, and then a percentage is added to the total cost, which over time will cover all costs. In this case, the company will not go bankrupt and will not go negative, even if it cannot work for the future.
This strategy is not suitable for certain categories of companies with high technological costs, since an attempt to return the investment will make the goods too expensive. In addition, when choosing this pricing strategy, customer expectations are not taken into account, and this can negatively affect them in the future.
Conclusion of a new product and the formation of its value
If a company tries to surprise customers with a novelty, especially if the enterprise itself is little known to the general public, then it is advisable to apply other types of pricing strategies. Not always people are willing to take a novelty, even if it is really high-quality and worthwhile. Habits play a huge role in consumer behavior. Therefore, in this case, a number of other factors can influence the final choice of pricing policy.
“Cream skimming”
Which company does not want to get everything at once? This position is called "skimming the market." The purpose of this pricing strategy of the enterprise is to make a profit in that segment of the market that agrees to buy this product at a set price. The cost of such a product is usually overstated by 30-40%, since anyone who wants to buy it is ready to pay this money. Even if there is a similar or similar product with a lower price on the market that attracts an average static consumer, this strategy takes into account only brand loyalty and willingness to purchase the product.
For this strategy, it is not required to produce bulk goods, since even small production loads will bring the expected profit. From the time when the saturation of the market and consumers with goods begins, the price drops below, usually to the average market. Due to this, more people are becoming interested in the product, which again leads to an increase in prices. Such a strategy can be used until the demand curve returns to the standard indicators for this product in the selected market segment.
Conditions for a positive outcome of this strategy:
- high quality of goods;
- noticeable brand image;
- the market segment is characterized by a small number of competitors;
- lack of a large number of similar products with a lower price.
Implementation and consolidation
A penetration and sound implementation strategy is long-term. The interest of the manufacturer is based on achieving prestige and a positive image of the enterprise. In this case, the price of the goods at the time of entering the market should be slightly lower than that of the nearest competitors.
The main attraction tool is the product itself, but at a more pleasant average price to the buyer. In addition, the task of finding regular customers should be solved.
The positive results of this pricing strategy in the market:
- cost reduction;
- growth in production;
- low price stops new companies from bringing similar goods to the market;
- expansion of sales markets.
Cost and Profit
The golden formula for success in trade is as follows: “average costs + profit”. This strategy is followed by many modern manufacturing companies. The essence of this approach is to choose a margin that will fully cover all costs, but at the same time bring profit. The price in this case should be balanced. Too low or too high cost will not allow to reach the desired volume of production and marketing. This strategy is used both for new products and for “stale” goods.
“Following the Leader”
Many small enterprises have to adapt to the trends that are forming larger companies. The same applies to pricing. Small firms are forced to either keep the cost of their products at the price level of large organizations, or set them 15-30% lower in order to attract attention.
When choosing this strategy, small companies can simply “follow the big brother”, which will help them save money on marketing research, for example.
Adjusted for prestige
There is a separate category of goods - luxury products. It is possible to form a price for such a product practically “from the ceiling”. This strategy applies to exclusive, high-quality products, and / or possibly handmade. Properties and characteristics should seem "higher" than the set price. In this case, the product will be popular.