Marketing mix defines your business and the most basic components of a market mix comprise of Price, Product, Place, and promotion. This shows how important price is for a company. Setting the price is not an easy task at all. It involves different analysis and deep insights regarding the target market. Some of the most commonly used pricing strategies are:
When a firm knows that the product they are offering is of superior quality and can easily outperform its substitutes, they set a price higher than their competitors. They charge higher prices as compared to their competitors, as they know they are providing a better product. This is called premium pricing.
When a firm wants to attain more market share, the strategy they use is Market Penetration. In this strategy, the price they offer is very low and none of their competitors can offer the same product at such low price. This strategy is commonly used by the new business firms or organizations which want to capture the major share of the market while making a stronghold.
This type of pricing strategy involves charging higher prices in the introductory phase of the product launch. Then firm starts to lower their prices gradually. This type of pricing can be witnessed in technological firms especially mobile phone manufacturers.
Apart from above-mentioned strategies, there are also other price setting strategies like economic pricing, bundle pricing, psychological pricing etc.
Factors to be Considered while Setting Product Prices
Price is reliant on number of different factors, some of them are more crucial and some impact the pricing only on a minor level. Some of the most prominent factors that play a vital role in determining the price.
Fundamentally the price is based on the cost an organization incurs while developing a product or a service.
Next factor which plays a vital role in setting a price is the profit margin. Realistic profit margins should be set. Unrealistic profit margins can result in bad performance of the product in the aspect of doing business
Demand of the product is also considered while determining the price. If the demand is high and supply cannot fulfill all of the market needs, you charge a bit high. But when the demand is low, you have to offer competitive prices and sometimes offer special discounts as well.
While setting the prices, also make sure that your business strategy aligns with the price you are charging. For example, if a firm is providing an average product or service but charging a premium price, ultimately that business will collapse.
While setting the price, it is also necessary to know more about your customer and gain in-depth knowledge about their buying power, buying pattern etc. If you know the buying power of customer well, you can generate greater profits while maintaining the quality of the product and service.
Competitors can influence your prices by large and affect the price level of the whole industry significantly. So consider competitors’ price as well while setting the price of your own product.