How Does Pricing Strategies Affect New Products Marketing Essay

Introduction

No matter profit company and/or nonprofit company which must set prices on their products or services. For a product and / or service, price is the amount need to be marked on them. Other than that, price is the amount of money for which something is bought or sold. In the consumers point of view, they would like to giving one thing but get a better product or service back to home.

In the past, price is the characteristic part in the marketing mix that produces profit and all other costs. Price is also one of the most important and easily change characteristic part of the marketing mix. Price can be changed anytime & very quickly.

We need to set price when we have a new product, or when we enter a new market with an existing product. We need to decide what position we want our product to be in. Then, we have to set pricing objectives.

Pricing strategy doesn’t just mean keep the price low! If the price is too low, some of the customers may think about that our product is not good enough compare to the others. If our price is too high, the customer may think about the our product is not reasonable or even valuable. We have to design a proper pricing strategy. It is very important. If we increase the price in an invisable stage, it will help our sales. If we decrease our price without notice, it can be increase our sales too.

According to Philip Kotler identified 9 price-quality strategies:-

Table 1 – 9 Price-Quality Strategies

High Price

Low Price

High Quality

Premium

High Value

Super Value

Over Charging

Mid Value

Good Value

Low Quality

Rip-off

False Economy

Economy

Background

In reality, price is the amount of money which can be changed for a product and/or service, or the sum of the values customers who would like to exchange a better product and / or service. Prices were determined through bargaining or negotiations between buyer and seller. Different prices were designed based on the customers need and bargaining skill.

We begin the creation of our strategy by giving a judgement on what the overall objective of our company is. We can think about the following in total four categories:

First, If the market which we are interested and our company is one of the biggest in the industry we will want to invest our best resouces in support of our offering.

Second, If the market is very attractive but our company is one of the smallest ones in the industry. We must concentrate on strengthening the enterprise, using our offering as a stage of progress towards achieving this objective.

Third, If the market is not especially attractive, but our company is one of the biggest in the industry. Other than that, an effective marketing and sales effort for our offering will be good for generating profits.

Fouth, If the market is not especially attractive and our company is one of the smallest ones in this industry. If that is the case, we can publicize the product in order to sell it if it can supports a more profitable part of our business or if it obsorbs some of the overhead costs of a more profitable segment. Otherwise, we should decide the most cost effective way to get rid of our company on the pricing.

While we can not find a method to determine pricing. However, we can try the following points which may help us to organize and / or designed for a new product on the pricing:

We have to try develop marketing strategy. We can perform marketing analysis, segmentation, targeting, and positioning.

We can make marketing mix decisions. For example, to define the product, distribution, and promotional tactics.

We have to estimate the demand curve. This is to understand how quantity demanded varies with price.

The very important part is to calculate cost, not only the fixed costs. We also have to included the variable costs together with the product.

Of couse, we have to understand the environmental factors such as competitor actions, understand legal constraints, etc.

We have to set a pricing objectives. Fo example, profit maximization or revenue maximization.

We have to determine pricing. When using some of the data and then organized for the above points, choose a pricing way, establish the pricing structure, and then stage precisely the meaning of the discounts.

If the product or service has been branded, it will have a special name and packaging, and be direct at a special part of the market. The important part is to choose a right price to complement the brand image; a valuable brand should have a low price. Nowadays, different products have a different brand image. Price is not just decided by demand and supply in the market. Price can have different influence all over the price of the product.

A company can choose pricing strategies for different reasons:

A company has to make sure the price has covered all the necessary costs and think about how to make profit.

A company has to think about how enter a new market by some strategies.

A company has to think about how to increase its market share

A company has to think about how to increase its profits

We have spent a lot of time on the first factor, expenses and profit goals.

Objectives of the Research Report

Building an effective pricing strategies for the products or services is key to succesful. For any new products, the pricing objective sometimes is either to increase the profit margin or to increase the quantity of the marketing share. If we want to satisfy these objectives, skim pricing, penetration pricing strategies and comparable pricing strategies which have to be considered:-

Skim Pricing Strategies – If our offering are totally different compare to the others to justify a high price and we want the cash back very quick and have smallest in amount for significant market penetration and control, then we can set the prices very high.

Penetration Pricing Strategies – If near term income is not so decisive and rapid market penetration for possible result market control is needed, than we can set the prices very low.

Comparable Pricing Strategies – If we are not the person that lead our industry, the leaders may be would like to have to designed a special price expectation in the market. If that is the case, we can design our price to all those of our competitors.

Cost-plus pricing – It should get involve of an estimation on how many of the goods will be produced. After that, the products need to be calculated the total cost of producing this output. Then, the products have to be decided the percentage to mark-up for profit. The advantage for the cost -plus pricing method is very easy to use in a practical way. However, the disadvantage is that we may lose sales if the selling price is a lot higher than competitor’s price.

Promotional pricing – Promotional pricing can be used when we want to price the product at a very low price from a certain period of time. The advantage for this method is that it is useful for getting rid of unwanted stocks and we believe the stocks are not easy to sell, and it can also help to renew interest in a business if sales are dropped. The disadvantage for this method is that the sales revenue may be lower because the price of each item will be low.

Findings & Analysis

When we try to get to the final pricing models, the following factors which we have to be considered very carefully:-

Positioning – First of all, we have to think about how we position our product in the market. Pricing may be going to be an important part of that positioning but it takes time to decide. If a discount store will be going to run, the first thing we have to think about is trying to keep our products in a low price at least lower than our competitors. On the other hand, if our products will be positioned as a luxury, exclusively. Then, we have to think about our product image. The price for sure can not be low. Otherwise, it will be destroyed our image. The price has to be consistent with the positioning. People would only like to pay what they think is right.

Demand Curve – Second, we have to think about how our pricing will be affected the demand. We are going to have to do some basic market research to find this out. First of all, we have to interview some people to answer a simple questionnaire and asking them how our product if it is marked at certain prices. Then, we can get their feedback as much as we can. For a larger venture, we will want to do something more formal. In this case, we may need to hire a market research company to do it.

Technology is more important than ever in creating and executing a pricing strategy. The best systems allow retailers to regularly review market factors and change prices. They can look at large numbers of items easily and respond rapidly to market changes. For example, competitive data should not stale waiting for review but can be acted upon as collected.

In a successful business, priced in a good product is very important. Marketing research, creative, data recorder, flexible, time is all related to pricing. We need to be very carefully when handling the cost of products. Our targeted customers are always only selected the proper product price. If we can follow in a proper way, we will see our successful in some day.

Conclusion

Pricing is a complicated business. The first thing we have to do is make a fair profit on the each of the products; and even a substantial one if we create value for our customers. But the only think has to be remembered is what the customer would like to pay for it.

Establishing a formal pricing strategy is a long-term commitment. If we can establish a pricing in an intended result, not only our sales volume will be increased. We can also make a good profit through our strategic pricing. This is also an important tool on successful marketing strategies.

By developing a formal pricing strategy, we can prepare our company for success. If we understand our customers, competitors, product roles, and the full costs of our products, we can knowledgeably select and implement a pricing strategy across our product portfolio. The rationale and structure for the pricing strategy we choose should be clearly communicated across our company.

One of the interesting thing about business is that it is difficult to define what is Perfect Market. The market is made up of all buyers and sellers. The most important thing is pricing strategies. If a pricing strategies can not be determined well, we will get trouble on it.

One of the most important thing is to establish a proper price for whole such things. The customers are only to pay what they think it is valuable, reasonable, attractive to buy. Therefore, we have to be very carefully when we consider the pricing structure because whatever the price that we come up with, we are normally stuck with this for a period of time.

Therefore, if we get this wrong or we just do what everyone else does, no profit can be made. That is to say that we have not taken into consideration our overhead requirement and our point of difference of competitive advantage that can achieve for a much higher pricing structure.

Bibliography / Reference List

Christopher W. Hurst (2009), “Price Optimization: A Potent Weapon for the Warranty Industry”

Thomas T. Nagle, John E. Hogan, Joseph Zale – 4th ed. (2006), “The Strategy and Tactics of Pricing: A Guide to Growing More Profitably”

Philip Kotler – 11th ed. (2005), “Marketing Management”