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As the only revenue-generating ‘P’ of the marketing mix, price plays an important role as a tool that helps in achieving your marketing objectives. The common practice for setting prices is to cover the cost of goods, and undercut the competition. While it’s common practice, this method is far from best practice. A company’s chosen pricing model must accomplish three goals; profitability, increasing willingness to buy, and support the product positioning.
There’s a number of considerations when setting prices. The chosen strategy is informed by the objectives, the target audience, positioning within the marketplace, ensuring profit, and demand from consumers. So what are some pricing strategies?
A competitive pricing strategy uses the price set by competitors as a benchmark. There is no consideration for the cost of goods or demand for the product. This strategy is best adopted in saturated markets where price is the deciding factor for a consumer.
A favourite among retailers is cost-plus pricing. This strategy simply adds a markup to the cost of goods, to align with the profit the seller wishes to make.
Ever experienced a ridiculously high charge for an Uber? Known as surging prices, Uber’s adoption of a dynamic pricing model allows them to charge to suit the market at any moment.
For companies entering highly competitive and price-sensitive markets, adopting penetration pricing has the ability to attract a large number of consumers away from competitors, gaining a large market share. The aim is to gain customer loyalty and ensure long term purchasing.
Consumers are the ultimate deciders of what the price should be. Value-based pricing sets price based on the consumer’s perceived value of a product or service, rather than the motivation to cover costs.
“Why don’t they just make it $50 instead of $49.99?” - well, there is a method to this madness. Prices ending with a 0.99 suggest that the purchase would be a bargain. In an instance where a consumer lacks the ability to determine the value of a product, psychological pricing has the potential to influence a purchase.