To understand the pricing strategies of an enterprise, one must start by studying the types of market and the rules for their existence. Without knowing the general picture of global and local economic processes, it is not so easy to understand why one or another way of forming the cost of goods is suitable in this particular case. Pricing strategies in marketing can also be selected based on the category of the product being offered. For example, the cost 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.
Market Types
The correct definition of 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 according to the presence of competitors and their capabilities.
There are four main types of markets in today's economic environment:
- Pure competition. In this case, there are an infinite number of manufacturing firms on the market. Usually,consumers have to choose from similar but differentiated sales offerings. The organization will not have any difficulties with entering such a market, leaving is also not difficult, and each individual firm cannot have a significant impact on the price level.
- Monopolistic competition. There are many manufacturers in the market, and consumers choose from similar products or services. In this case, each organization strives to create a unique selling proposition through design, additional options, service, 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, there are up to six large manufacturing companies on the market. It is extremely difficult for other firms to enter the market because of the difficulties or inability to gain access to the raw materials and technical base, skilled workers, as well as the availability of the necessary patents from the oligopolists. Representatives of this type of market competition can work both separately and unite into concerns. Commodity prices are entirely dependent on policy and goals.
- A market without competition or a monopolistic market. There is only one manufacturer on the market. Most often, this highly specialized production, as a rule, is expensive. Prices are completely dictated by a single market participant, but can be controlled by the state.
Pricing: pricing strategies
Firms entering the market may choose different ways of becoming, so they will give backpreference for those methods of value formation that are more suitable for their situation. In view of this, it is customary to distinguish six main types of pricing. A separate category also includes ways to determine the cost of a new product or product for the market after rebranding.
Ensuring Survival
What will be the main thing for the company? Of course, to ensure the survival of both the product and the company itself. Without following this basic goal, it is unlikely that the enterprise will be successful. This task immediately highlights the firm's awareness of the fact that there are competitors, similar or even similar products and the need to make every effort.
Most often, products and services are not 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 to maintain its place in the market. There is no question of profit in this case.
Profit maximization
Many companies try to achieve great results in a short period of time. They set the highest possible price for a product. However, they forget that it is important to assess the real demand for a product or service, as well as take into account all associated costs (logistics, packaging, storage, etc.). Such inflated prices are kept 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, you can getundesirable consequences: undermining the business image, lack of long-term vision, customer churn, lack of repeat purchases, etc.
Achieving leadership
In order for a company to be a trendsetter, it is necessary to come out on top in the consumer demand rating. 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 must 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 big profits in the initial stages.
As you know, a two-fold increase in production leads to a reduction in costs by at least 20% per unit of goods. Therefore, the more you need to produce a product, the cheaper it will be to create it for the company, which means that profits will also increase by 20-30%.
Product quality as a path to leadership
For firms with long-term plans, the development of a pricing strategy is driven by other factors. Their main task is to create the highest quality product. This is no easy task. They are forced to create a product at the lowest price in the largest possible volume while maintaining proper quality.
The "reliability" factor can become a key factor for many consumers when choosing a particular product. To justify the high cost in this case, you canexceptional quality or additional options. This will cover all technical costs. Items in this price range are in high demand. Buyers are willing to pay more for a product they can trust. Such goods and services are also often made popular by word of mouth.
Expansion of the number of distribution channels
If it is necessary to attract new customers when the distribution market changes, for example, when expanding the range of the company's products, the main task will be to try to achieve goodwill and loy alty through an attractive price.
Maximum difficulty this goal becomes because of the difficulty in finding a balance. After all, too low a price can raise unnecessary questions about the quality of the goods, and too high lead to the unwillingness of consumers to give money for an unknown product.
This pricing strategy should be very well presented. Interest in goods with an initial high price can be generated through discounts. Cheaper products and services should be made a little more expensive, but offer all buyers a nice bonus.
In many ways, this strategy is considered universal and profitable. First, when the season of bonuses and discounts ends, the number of people who stopped buying this product will decrease slightly. Second, it may raise the cost of cheaper products.
Return on investment
Every company invests money in production. Often they also have to attract outside investorsor take loans. Therefore, when choosing the optimal price of a product, the amount that was spent on reproduction is taken into account, and then a percentage is added to the final cost, which will eventually cover all costs. In this case, the company will not go bankrupt and will not go into negative territory, even if it cannot work for the future.
This strategy is not suitable for certain categories of companies with high technology costs, as trying to return the investment will make the product too expensive. In addition, when choosing this pricing strategy, the expectations of buyers are not taken into account, and this may have a negative impact in the future.
Introduction of a new product and the formation of its value
If a company is trying to surprise customers with a novelty, especially if the company itself is little known to the general public, then it is advisable to use other types of pricing strategies. Far from always people willingly take a novelty, even if it is really of high quality and worthwhile. Habits play a huge role in consumer behavior. Therefore, in this case, a number of other factors may influence the final choice of pricing policy.
Cream skimming
What business doesn't want to have it all? This position is called "skimming the cream from the market." The purpose of this pricing strategy of the enterprise is to make a profit in the segment of the market that agrees to buy this product at a set price. The cost of such a product is usually overpriced by 30-40%, since those who want to buy it are ready to pay this money. Even if there is a similar or similar product on the market witha lower price that appeals to the average static consumer, this strategy takes into account only brand loy alty and willingness to purchase the product.
This strategy does not require mass production, as 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 price. Due to this, more people begin to be interested in the product, which again leads to an increase in the price. This strategy can be used until the demand curve returns to the standard values for this product in the selected market segment.
Conditions for a positive outcome of this strategy:
- high quality product;
- visible brand image;
- market segment is distinguished by a small number of competitors;
- lack of a large number of similar products with a lower price.
Introduction and consolidation
The strategy of penetration and lasting adoption 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 product at the time of entry into the market should be slightly lower than that of the closest competitors.
The main attraction tool is the product itself, but at a more pleasant price for the average buyer. In addition, the problem of finding regular customers must be solved.
Positive results of this pricing strategy in the market:
- cost reduction;
- production growth;
- low price stops new companies from bringing a similar product to market;
- expanding sales markets.
Costs and profits
The golden formula for success in trading is: "average cost + profit". This strategy is followed by many modern manufacturing companies. The essence of this approach is to choose a markup 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 reaching the required volume of production and sales. This strategy is used both for new products and for "stale" goods.
Following the leader
Many small businesses have to adjust to the trends that shape larger companies. The same applies to pricing. Small firms are forced to either keep the cost of their products at the level of large organizations, or set it 15-30% lower in order to attract attention.
When choosing this strategy, small companies can simply "follow big brother", which will help them save money on market 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 toexclusive, high quality goods, and/or possibly handmade. Features and performance must appear "higher" than the stated price. In this case, the product will be popular.
