Pricing Strategy - How To Pick an Effective Product Pricing Strategy

Back in the olden days in Mesopotamia, traders focused on prices to keep them on top of the business ladder. There are four P's in the Marketing Mix: Price, Product, Place, and Promotion. In essence, Price is the most valuable marketing weapon among the four. However, it is common for small and medium-sized businesses not to realize this. Their business managers do not realize that they need to learn how to pick an effective product pricing strategy to make the enterprise successful. Once the price is right, all the remaining weapons in the marketing mix will follow suit.

Before choosing a pricing strategy for the business, it is best to first fully understand the different pricing strategies that the business can adopt.

  1. Cost Based Pricing. This is the simplest form of pricing strategy. Basically, the selling price is derived from adding the Cost and the Profit that the businessman would like to gain. This pricing strategy does not depend on the market and the target consumer, which is somehow unrealistic because there are also fixed costs to consider.
  2. Contribution Pricing. The selling price is obtained by adding the Cost to the Fixed Costs. The Fixed Costs are the operational expenses and marketing and advertising expenses for the business. Companies who use this pricing strategy have a wide range of products that allow them to assign the fixed costs to the products that are doing well in the market.
  3. Work Back Method. This is the most useful pricing strategy for small businesses. There is no clear formula for this pricing strategy because it will all depend on how well the product is doing in the market. For example, if the product is not doing well compared to a competitor, the businessman can opt to add more value to the product than its competitor at the same price.
  4. Market Skimming. This pricing strategy is used when the product that is sold is a completely new innovation. Since the product is the only one of its kind in the market, the price can be set at a higher value. Once competitors come in, the price may be adjusted in order to be competitive.

These are just a few examples of pricing strategies. There are still more pricing strategies in the market today and more are being developed as the consumer and producer needs evolve. How to pick an effective product pricing strategy then becomes an important role of the business manager in order to make the enterprise successful.

Contrary to popular belief, value is more important to the customer than its price. A customer may buy a product at a high price when he realizes that it is worth every penny. Total Customer Desired Value means quality, availability, and promotional effort. The business manager should, then, realize the need to choose a product pricing strategy that will allow the business to provide total customer satisfaction. It is also important not to forget the remaining three P's in the mix.


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