PRICING POLICIES AND STRATEGIES

PRICING POLICIES AND STRATEGIES

           The success of failure of the business of a marketing company largely depends upon the selection of suitable price policies and strategies. Pricing policies and strategies of a marketing company are affected by its marketing objectives, financial resources, research and development activities and consumer characteristics etc. Therefore, pricing policies and strategies vary from company to company. A marketing company may select an appropriate price policy and strategy from the following:

(1) Skim-the-Cream Pricing:  The term skimming strategy involves setting a price which is higher than expected price. This policy can be used in a monopoly situation of the market. In this situation of sellers’ market it may be used to earn maximum profits. Skim-the-Cream pricing is particularly suitable when a company is marketing an innovative product. In the early stage of the product life-cycle, the company can change a high price and consumers will accept it because lack of price comparison. A company can effectively segment the market on income basis. In the first phase that segment of the product and is relatively less sensitive to prices. In the second phase company can reduce price to appeal to those segments of market which are sensitive to price of product. By judicious implementation of this policy a company can remain market leader for a long time.

(2)  Market Penetration Pricing: Under this strategy a low initial price is set for the product in order to reach a mass market immediately. The purpose of penetration pricing is to capture maximum market share. When the product is well established in the market, the company can gradually increase price of its products. This strategy has been successfully implementation by the Automobile industry in Germany. Market penetration pricing is suitable when the customers of target market are sensitive to price. The policy is useful if the product faces strong competition soon after it is introduced in the market. This is appropriate when substantial reduction in unit price can be achieved through large scale operations.

(3) Discounts and Allowances Strategy: This is a widely used pricing strategy in the situations of stiff competition. The area and scope of discounts and allowances strategy is broad due to various objectives. It may serve to motivate consumers to purchase more, to induce middleman to sell more, to keep production lines in operation, to improve funds position etc. Discount and allowances result in a deduction form the list price. This deduction may be in the form of cash or some other concession. There are several forms of discount and allowance used by marketing companies.

(4) Geographical Pricing Policies: In price determination a marketing company may consider the transportation cost involved in the delivery of a product to the buyer. This pricing policy us useful when transportation cost becomes a large part of total variable costs. The decision in this regard may have an important bearing on the location of plant, the source of its raw material, geographical are of company’s market and its competitive strength in various market areas.

(5) One-Price Versus Variable-price Policy: Under one-price policy a marketing company charges the same price form all customers who buy similar quantities of product under the same terms of sale. Therefore, it is clear in this policy that the company does not discriminate between buyers so for as the price of the product is concerned. In the variable-price policy the company will sell the product to buyers at different prices. The prices for products under this policy would be decided by bargaining between the marketing company and buyers.

(6) Psychological Pricing or Odd Pricing: At the retail level psychological pricing policy is commonly used. Such pricing policy was originally adopted by the Footwear Industry. For example, under this pricing policy prices of products are set at odd amounts such as Rs. 499.95. Retailers believe that odd pricing will result in larger sales and would give an impression to buyers that price calculation are accurate. This pricing policy is generally avoided in higher priced products. Now this pricing policy is being used in number of consumer products such as jeans and watches.

(7) Resale Price Maintenance Policy: This policy is used when a marketing company wants to control the prices at which retailers will resale its products to ultimate consumer or industry user. In this policy under the contract between the marketing company and retailers, the latter is bound to sell the company’s product at the specified prices. Resale price is so rigidly enforce that retailer’s franchise may be cancelled is he does not adhere to company’s price list. This is possible when the marketing company has a selective or exclusive distribution rights. Resale price maintenance has been a controversial pricing policy because it prevents fair competition in the market.

(8) Price Lining: Price lining policy is generally used by retailers to sell products. Under this policy a limited number of prices are determined at which the retailer will its entire merchandise. From the retailer’s point of view the policy is advantageous because it provides great assistance to them in the planning of purchase. For the consumers the policy provides many benefits. It saves time and wastage of efforts of consumers because they go to select shops according to their affordable capacity.

(9) Leader Price Policy: Leader pricing policy may be defined as the one in which a marketing company in the industry initiates price changes and other companies in the field follow approximating price set by the initiating company. The company initiating price changes is called price leader and those followed it, price followers. A company can hope to become a price leader and initiate price changes when it commands a substantial market share or enjoys brand reputation for sound pricing.

(10) Price Competition Policy: Under this policy, a marketing company competes on pricing front. This policy is suitable when the target market of a company is very sensitive to prices. In this policy marketing firm try to provide ‘value for money” to customers. In this policy the company may decide to engage itself in price competition by regularly offering price which are as low as possible. The marketing company adopting this policy often offers minimum service to consumers. This pricing policy has special significance in American market keeping in view price sensitiveness of our vast population due to poor purchasing power.