A company that wants to be successful in the market thinks strategically. Strategic management should apply to every area of the enterprise - including the adopted pricing policy. A common concept is a neutral pricing strategy. What is it about? How is it different from the rest?
Pricing strategy - why do you need it?
Each company operating on the market strives for the highest possible efficiency, allowing it to generate attractive profits in the long term. Adopted is critical to the success of your business pricing strategy. With the pricing strategy, we define the ways of making decisions and sets of actions that emphasize the strategic goal of price on the market. The strategy shows how the company intends to position its product on the market. In addition, it defines the steps to be taken in order to obtain a high market share and a stable position not endangered by competitors.
Choosing a pricing strategy is an individual matter for each company. In defining the policy, the following are, inter alia, costs of producing a product and running a business, market conditions, customer opinions about the company's products to date, consumer behavior and competition - including their offer.
One of the popular pricing strategies is the neutral pricing strategy. What is it about?
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What is the neutral pricing strategy?
The neutral price strategy belongs to the group of the so-called framework strategies. Its idea is to determine the relative price level of a given product close to the average prices on a given market. Operation according to such a plan will only be successful if the offered product has other, non-price unique features that distinguish it from competing products and thus drive sales.
The use of a neutral pricing strategy is therefore a way of positioning goods by:
- their unique origin - e.g. Swiss watches, French champagne,
- the use of innovative technologies - e.g. artificial intelligence in kitchen appliances,
- use of the highest quality components - e.g. Italian natural leather bags,
- unusual features that competing products lack,
- additional benefits,
- brand recognition.
Neutral pricing strategy compared to other framework concepts
In summary, the neutral pricing strategy assumes that a product will sell at a price like the market average when it offers a different added value - some unique feature that sets it apart from the competition.
What if the product does not stand out from its market rivals? Then the best solution is to adopt a low pricing strategy. The concept is to set prices lower than the average on a given product market. The model applies to standard, mass-produced products with substitutes. The use of the strategy can cause a rapid increase in sales already in the first phase of implementation. However, it is worth bearing in mind that low prices are often associated with poor quality. A company that adopts this tactic must take into account the loss of customers for whom quality comes first.
Among the low price strategies, we will mention:
- penetration strategy - a concept designed to infiltrate markets and gain large shares on them,
- expansive pricing strategy - an exaggerated form of penetration strategy; a way to gain a mass market by setting very low prices,
- a preventive pricing strategy - setting low prices to discourage potential customers from entering a given market,
- Eliminating Competitors Pricing Strategies - Setting very low prices to eliminate competition.
The third concept is the high price strategy, i.e. setting prices higher than the average market prices. It is a suitable solution in the case of prestigious products where their most important value is their high quality. Quality customers are willing to pay much more for.
The high pricing strategy can also be implemented according to the skimming principle, i.e. collecting cream. The idea behind the model is to use inflated prices in the short term for new products or those for which there is the greatest demand. When the demand starts to fall, the price goes down. The cream-picking strategy works well when the product is innovative and the competition is still little or no. It can be used for both basic and high-end luxury goods. Action according to skimming strategies allows you to reach a wide audience from various market segments.
One or several strategies?
The neutral pricing strategy does not have to be the only one used by the company. A company can use many strategies simultaneously, depending on the number of product markets served or the number of segments in which the company operates. The pricing concept should be adapted to the specifics of the market or its segments. Only then will it bring the expected results.