How are the prices of products determined? Many entrepreneurs add a certain margin to the cost of manufacturing or purchasing finished products and thus determine the final price of the goods. Is this method effective? Not completely. A well-thought-out pricing strategy will bring the best results! We present the most popular pricing strategies.
What is a pricing strategy?
Pricing strategy is to determine the value of the products or services offered in such a way as to maximise profits and generate a high share of the target market. The determination should take into account factors such as the cost of producing/purchasing the product, the current industry situation, price trends, economic conditions, demand and competition analysis.
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Popular strategies
Pricing strategy is an important element development strategy enterprises. Skilfully implemented, it can increase the sale of the product and thus positively affect the profits. What pricing strategies are the most popular?
- Cream harvesting strategy
Pricing strategy involving the setting of inflated prices. The method is mainly used when marketing innovative, unique products that no one else offers. The exaggerated price gives the offered item the image of an exclusive, better quality product. The strategy will only work for a short period of time - until competition enters the market.
- Market penetration strategy
The entrepreneur offers very low product prices to maximize sales and gain a large market share. This strategy will work in the case of marketing of products. It can also be used to retain the company's existing customers. A necessary condition for the success of the strategy is a high price elasticity ratio of demand.
- The strategy of imitation
Pricing strategy which consists of setting prices close to those offered by market competitors. It is worth bearing in mind that the method will only work if the product offered stands out from the goods of competitors who have a stable position in the market.
Types of framework pricing strategy
In the context of shaping a company's pricing policy, it is crucial to understand three basic pricing strategieswhich lay the foundations for further action. Pricing strategy high is based on pricing above the market average, which is often linked to the perception that the product is exclusive and of high quality. In contrast pricing strategy Neutral implies pricing close to average market prices, which requires differentiating the product with features other than price to attract customers. In contrast, pricing strategy low involves offering products at prices lower than the market average, which can lead to a rapid increase in sales, but carries the risk of the product being perceived as less valuable.
How do you choose the right pricing strategy?
The decision to adopt a particular pricing strategies should be preceded by an in-depth analysis of three key elements: costs, demand and competitor prices. Analysing costs identifies the minimum price level at which the business remains profitable. Understanding demand allows prices to be adjusted to meet customers' expectations and affordability, which is important in terms of pricing policy. Monitoring competitor prices, on the other hand, makes it possible to determine whether the products offered should be more expensive, cheaper or comparable to others available on the market. Choosing the right pricing strategy in marketing therefore requires balancing these factors in a way that best suits the company's objectives and capabilities.
Pricing formulas in pricing strategies
As part of the pricing strategies There are several pricing formulas that companies can use depending on their pricing policy. Comparative pricing involves setting the price of the product at a level close to or lower than that of the competition, which can increase the attractiveness of the offer. Psychological pricing uses customer perception mechanisms, e.g. setting the price at £9.99 instead of £10, which gives the impression of a lower price. Differentiated pricing adapts the price level to different customer segments or distribution channels, maximising profits by taking into account diverse market expectations. Applying the right formula within the pricing strategy is key to successful product positioning in the market.