Market conditions make entrepreneurs pay more attention to marketing theories. Their application in practice allows the company to be competitive and build the right development strategy.
Basic Marketing Pricing Strategies and Methods: Overview, Description and Features
One of the priority goals of marketing is to study and find out the needs of the clientele. The data obtained will help to develop the product that suits the customer the most 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 win in the fight for the 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, the use of only this approach is a failure if the marketthere are other similar proposals. Under such conditions, it becomes necessary to consider a separate branch of marketing - pricing methods in marketing.
What methods are there?
In general, there are 6 methods, 2 of which are focused on cost accounting for the production of goods and the remaining 4 - taking into account market factors.
Which one should I use if the product is new? When establishing the cost of a new product, the principles of management in the enterprise should be taken into account. In any case, one criterion remains unchanged - the price of the product must 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 its shortcomings. The enterprise must decide on its own whether to use one or the other method.
Expensive ways to determine the cost of goods
Pricing methods in cost-based marketing involve determining the final cost by adding the sum of production costs and the sum of the expected profit of the company. A prime example is the full cost method.
To obtain its coefficient, you must set the sum of variable and fixed costs. Next, add the level of expected profit. The next item indicates the amount of production that needs to be divided by the previous indicators.
Choosing a pricing method in marketing in such a simple way is widely usedmany Russian companies. There are several weighty arguments for this:
- It is easier for a firm to obtain data on its own costs than on the needs of consumers.
- Price competition will be lower even if competitors use this method.
- Easy to determine the minimum price mark of the product.
- Selling at the received price allows you to offset the cost of production.
- Provides the rate of expected return.
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 is that competition remains unaccounted for, which gives competitors a chance to use this gap in their favor by 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 initial data are taken into account:
- Production cost limit.
- Product profitability in % terms.
- Cost of goods.
The calculation is simple: variable costs per unit of goods are determined, coefficients are added to cover these costs, plus the rate of potential profit.
Direct Cost Accounting
Methods of marketing pricing as a tool for determining the optimal cost of goods are also offeredone way: variable costs plus profit in the form of a premium on each unit of output. There is a question about accounting for fixed costs. This item will be taken into account in the amount that arises from the implementation, minus the amount of variable costs.
ROI method
The list of the main pricing methods in marketing also takes into account the investment made in the production of goods. It is important to remember that marketing takes into account not only the amount of investment, but also the return amount. Any investment involves the goal of receiving a dividend. That is, the return amount must definitely be greater than the investment amount.
The same rule applies to internal investment, that is, when a company invests in marketing campaigns and measures. Thus, the company intends to increase the level of its income. These values must be taken into account in the cost of goods.
In marketing, there is a special formula for calculating the amount of return on investment. According to it, calculations are made in the following order:
- Investment amount.
- Revenue.
- The combined sum of gross margin and production cost.
- Return on investment and investment coverage.
Deducting the cost of goods sold and the amount of investment coverage from the second paragraph, we find the return amount.
Method of determining the target value
With this method, the cost of the product is taken into the calculation base, taking into accountexpected 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 such a method may not meet the company's expectations and, on the contrary, may lead to stagnation of goods.
Price markup method
Marketing pricing strategies and methods involve a variety of approaches. One of them is the multiplication of the price of purchase and sale of goods by a special multiplier. For the company, this method is beneficial in that it does not require the cost of researching demand, since in this case it is not of fundamental importance.
In general, pricing methods in marketing are briefly divided into two types: consumer demand-based pricing and value-based pricing. The surcharge method belongs to the second type.
When promoting such products, the 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 client 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 certain image of the product.
With this approach, the company's costs serve only as an economic limiter, below which the cost of goods cannot be lowered. However, there are cases of dumping. This is done to drive competitors out of the market and can be used as a temporary strategy. In the long termperiod, this method is not justified, since the value for goods in high price categories is precisely the high cost.
A striking example of a similar marketing ploy is the cost of a cup of coffee in an eatery and in a restaurant. As the analysis of pricing methods and strategies in marketing shows, in the second case, the consumer is ready to pay several times more just for a special atmosphere.
Market pricing methods
This section of marketing has three main methods:
- Customer driven.
- Focus on competitive companies' strategies.
- Normative-parametric approach.
The first type of methods is divided into the following types:
- Assessing the maximum acceptable cost.
- Demand driven.
- Limit analysis.
The main pricing methods in competitive marketing involve the following subspecies:
- Focus on market leader prices.
- Based on customary prices.
- Tender type.
- Auction method.
- Reference to market prices.
The normative-parametric approach implies the following types of calculation:
- 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 in her choice. But there are factors thatmust be taken into account when pricing. One of the most important is the product life cycle. If it has been known to customers for a long time and has its place in the market, then sliding, elastic, preferential or consumer methods are applicable.
New products will be successful if they use the cream skimming method, leader orientation, psychological techniques or market penetration method.
Practice in Russia
The entrepreneur has the right to independently set the price using any available pricing method. In general, two approaches to pricing can be noted: setting individual prices and setting a single price.
The pricing process is the only marketing measure that does not require a cash investment. But at the same time, experts believe that the pricing policy of many companies is not well developed and there are significant shortcomings. Most common mistakes:
- Insufficient adjustment of prices to changing market conditions.
- Excessive updating on pricing costs.
- Prices are not tied to other marketing elements.
- Prices are not differentiated by individual product line.
The most advantageous position is occupied by the price of innovation. As you know, an imitation product cannot boast of freedom in choosing prices. In contrast, innovative products can afford to use skimming, market penetration, or value benchmarking tactics.
Wondering aboutWhat 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, displacement of competitors' products and expansion of the sales area. Usually, after the full introduction of the product into the market, a revision of the pricing policy takes place. Two options are possible here: the use of a different targeted policy that leads to an increase in the cost of goods, or an increase in profits due to sales volume. Following this logic, applying a low price strategy turns out to be an economically viable move.
When can low prices apply?
At the same time, when implementing a low price strategy, some external parameters should be taken into account:
- The market is sensitive to price changes.
- As sales volume increases, costs should tend to decrease.
- Presence of fierce competition in the market.
The presence of such factors in the company's field of activity is guaranteed to lead to the success of a low price strategy.
When can I sell more?
The high price strategy is also paying off economically. But some conditions are necessary. First of all, they relate to the product itself. It must be either new to the market or protected by patents or the result of high-tech processes.
From the side of the market, such conditions as the formed image of a company or product, the presence of a sufficient number of target audience, the highest level ofcompetitiveness and small production volumes.
Once a product has established itself in the market, the company can develop products at a lower price point. This is how sales expansion and profit increase are achieved.
Conclusion
It is generally accepted that a product will make a profit if its final cost covers all the costs of its production. This is an overly general statement. But the potential of each market is much deeper. Marketing methods help to recognize it and put it into action. And their skillful application is half the battle for any company.
