Please Click For; Developing Your Marketing Strategy-  Part 1/4

TC YEDİTEPE UNIVERSITY INSTITUTE OF GRADUATE STUDIES IN SOCIAL SCIENCES PH.D. IN BUSINESS ADMINISTRATION PROGRAM

BUSS 611- Advanced Seminar in Strategic Management and Corporate Governance / Spring 2015

STRATEGIC MANAGEMENT TOOLS & TECHNIQUES:

Developing Your Marketing Strategy-  Part 2/4

Pricing

A second important element is price. We should decide the “value” of the product through the eye of the target market.

Basically, the price of product and services is determined by the interplay of 5 factors;

1. Supply/ Demand Conditions
2. The firm’s production and overhead costs
3. Competition
4. Buyer bargaining Power
5. Product and brand value to potential customer

 

Dean’s “Skimming And Penetration Strategies” (1950)

When the company sets the pricing strategy according to the production quality and Supply, we have 4 main strategies to follow.

• Economy Pricing.

This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for FMCG products.

• Penetration Pricing.

The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased.

• Price Skimming.

Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply.

• Premium Pricing.

Use a high price where there is uniqueness about the product or service. This approach is used where a substantial competitive advantage exists. Such high prices are charge for luxury products.

There are also some other strategies to price a product. Selection of the best strategy depends on various market situations.

• Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis.

• Product Line Pricing.

Where there is a range of product or services the pricing reflect the benefits of parts of the range. Up sales and bundles are product line strategies

• Optional Product Pricing.

Companies will attempt to increase the amount customer spend once they start to buy. Optional ‘extras’ increase the overall price of the product or service. (Cross Sell)

• Captive Product Pricing

Where products have complements, companies will charge a premium price where the consumer is captured.

• Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to move old stock.

• Promotional Pricing.

Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as Buy One Get One Free.

• Geographical Pricing.

Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.

• Value Pricing.

This approach is used where external factors such as recession or increased competition force companies to provide ‘value’ products and services to retain sales e.g.

Please Click For; Developing Your Marketing Strategy-  Part 3/4