Pricing Strategies
Producers face several problems, challenges and difficulties at the time of pricing their products. Besides, pricing strategy should be adopted to fix reasonable and proper price. Fixed price strategy should be adopted accordingly on the basis of pricing strategy. The main strategies are as follows:
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| Pricing Strategies |
1. Market Entry Strategy
Producers produce various products. All the old and new products should be sent to market for sale. Specially, the marketing manager may adopt two strategies for sending new products to market for selling. They are as follows:
- Market skimming pricing: Fixing more price of new product at the beginning is called market skimming pricing. According to such pricing strategy, price of new products becomes a little more than estimated price of target market. Even if the price of new product is more, the customers become eager to buy the new ones. Effort is made to recover research expenses in shorter time by convincing the customers that the price is reasonable with good quality. Under this strategy, company is made flexible and decreases price is needed. If the new product has good quality with good features and is safe from competition, this price may be fixed for taking benefits from the best element of the market.
- Market penetration pricing: Determining very low price in the course of supplying new products to markets is called market penetration pricing. According to such policy of pricing, the price of new products is fixed much lower than the expectation of the target market. The main purpose of determining such price is to take market share immediately and prevent competitors from coming to the market. If the market of the products is vast or there is intense competition, this pricing policy becomes very useful. But, if the market is limited and there is no competition, this strategy is not suitable.
Products/goods also have a life cycle like living things. Different pricing strategies should be determined according to the life cycle of the products. The given strategies to be adopted in the following situations:
- Introduction stage of products: Introduction stage of product is the first stage of its life. At this stage, market entrance strategy may be adopted. This strategy includes market hunting pricing and market penetration pricing from which large share of market can be occupied.
- Growth stage of product: At this stage of product life cycle, sale of products mounts very high. Prices of the products should be cut down a little to encourage this tendency.
- Maturity stage of product: Competition of the products grows at this maturity stage. Sale and profit remain stable. Although sale of products continues at beginning of this stage, the rate of growth may decline. So, in such situation a strategy should be adopted to cut down price rate slightly in order to maintain market share.
- Decline stage of product: Sale quantity declines very fast at this stage of product. Only some loyal customers may decide to buy the product. So, the strategy to decrease advertisement cost, cut price down and maintain existence of the firm should be adopted.
3. Price Change Strategy
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The environment of any market cannot remain same forever. It changes frequently. Price also should be changed according to the change of market environment. But, while changing price, study and analysis of customers’, competitors’, suppliers’ and government’s reactions should be done. There are two alternatives in price changing strategy. a) Increase, or b) Decrease. |
- Price increase strategy: Even a country has to face different problems. Due to inflation in the country, new taxes arrangement by government and lack of supply, prices need to be increased.
- Price decrease strategy: The producers should face market competition at any cost. On the other hand, full capacity of the company should also be used. Besides, the company should not escape from price war. In such situation, any company or firm should cut down the price.
4. Psychological Pricing Strategy
Determining price considering the customers’ perception is called psychological pricing strategy. This type of strategy encourages sentimental customers to buy products. This pricing strategy includes the following strategies:
- Odd even pricing strategy: Customers can be encouraged to buy products even by determining odd and even price. Odd price should be fixed to make the customers realize the price is low. For example, according to odd pricing strategy, price of any product can be fixed $99.95 instead of $100. Only $0.5 is different between the two prices. But customers may feel very different from each other. The customers can buy the product thinking that the price is very low. Even price fixing makes the customers realize that the product is of good quality. So, customers can also be encouraged to buy products by fixing even price. This type of price may be $150, $200, $250, $300 etc.
- Customary pricing strategy: This pricing strategy is based on the traditional practices. Product prices are determined on the basis of customers’ expectation. For instance, as a practice everybody has known that the price of Nepalese match is Re. 1. So, if the price of a match is fixed more or less than Re. 1, then the customers may be psychologically affected. So, the producer should also fix price Re. 1 for the new match. However, such pricing strategy may not be practical in view of cost.
- Prestige pricing strategy: prestige pricing strategy can also be adopted to establish prestige of any product. According to this strategy, price of the product is determined very high. This makes the customers think the product is of high quality and want to heighten their prestige by buying such products. Prestige price may be determined for ornaments, drinks, vehicles, other luxury goods etc. because the customers of such products/goods may be economically strong.
- Discount strategy: Discount pricing strategy also may be adopted for any product. According to this strategy, price of product goes high. Then the seller can be offered heavy discount for the product. Such pricing techniques encourage the customers.
- Promotional pricing strategy: Reputed companies can be offered cash rebates, longer payment terms and low price of the established product. Such pricing techniques are called promotional pricing of the product. This strategy remains for short run term because the competitors may follow it. So, the firm should improve product quality and services through advertisements.
Pricing Strategies in Nepal
Effective pricing policy can increase sales volume of product. Reasonable and correct price of product encourages sales. Such price of product helps to maintain and improve market share. It also greatly helps in facing market competition. Every producer company wishes to maintain stable price. Proper pricing strategy should be adopted for stability. Nepal’s business companies and entrepreneurs are found to have practiced following strategies:
1. Location precising strategy
Price of one kind of products may be different in different places like in Himalayan region, hilly region, Terai region, in valley etc. Although the cost for the product becomes same, the price becomes different for several reasons. Transport cost is an effective element to cause differences in price according to place. Price of Nepal Oil Corporation can be taken as an example.
2. Product mix pricing strategy
Production companies produce different goods using one transport cost. Prices of such goods are determined according to quality, features, facilities and utility. The customers should pay the price of the products which they decide to buy. Discount may be given for buying some products and may not be given for others. For example, Nepal Telecom gives discount on the basis of time.
3. Response pricing strategy
Producers may determine price on the basis of one or the other factors. The customers, consumers and competitors begin to express reactions. After the logical reactions have been received, the producers are compelled to make review. Some changes can be made in price of the products in order to face healthy competition. This increases the sale quantity. If price of the product needs to be cut down, discount facility may be closed.
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