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PRICE (TYPES OF PRICING STRATEGIES (Competition Pricing When trying to go…
PRICE
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PRICING OBJECTIVES
- Profit Maximization: Keeping in mind revenue and costs, a company may want to maximize profits. Profit maximization objectives should be long term and not focus only on the short term.
- Revenue Maximization: With less focus on profits, a company may focus on increasing revenues in order to increase market share and lower costs in the long term.
- Maximize Quantity: A company may want to sell a specific number of items to decrease long term costs.
- Maximize Profit Margin: Another objective may be to increase the profit margin for each unit and not focus on the total number of units sold.
- Quality Leader: A company may want to use price to signal high quality and establish itself as the quality leader.
- Partial Cost Recovery: If an organization has multiple revenue streams, it may not be too focused on recovering a hundred percent of its costs.
- Survival: Sometimes, the best a company may want to do is to cover costs and to remain in the market. If the market is in decline or there are too many competitors, survival may take temporary priority over profit.
- Status Quo: There may be a need to avoid price wars with competitors. So a company may maintain a stable price to continue a stable profit level.
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PRICING ISSUES
Price Fixing
In a competitive market, prices are often lowered to the benefit of the consumer. If these competitors were to get together and decide to sell at a fixed price, it would mean more expensive products for the user and more benefits for the company. It is therefore, a good idea for a company to study the competition and the market, but not to enter agreements to the detriment of the consumer.
Price Discrimination
When the same product is sold at different prices to different sets of consumers, it is called price discrimination. This is a tricky category, as special offers for seniors and children are acceptable while presenting only high cost options to higher income consumers may not be well received.
Price Skimming
When a product is priced high initially and then eventually sold at lower prices, it is called price skimming. The company aims to gather maximum benefit from premium users first and then slowly move down the chain to access all levels of consumer groups. Usually employed in the tech industry, if not managed well it can create a negative impression in the consumer’s mind. Eventually, some people may catch on to the pattern and stop buying till a lower price is introduced.
Opportunistic Pricing
Sometimes, the value attached to a product may be much higher than its cost. This allows a company to charge a premium price for their products. The grey area here is whether the company should follow this practice in all instances. If there is a shortage of a necessary good, or a special situation such as a natural disaster, then this opportunistic pricing may be very unethical.
However, software products that may be less expensive to produce but offer great benefit may not be similarly frowned upon. It is a good idea for a company to assess whether their premium pricing limits a consumer’s access to a necessary item such as food or medicine.
Pricing plays a very important role in determining a products perceived value, in building brands and in ensuring long term profits and sales for the company. It is therefore important to give it due importance and allow in depth analyses to become the basic of pricing decisions.
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There is often a tendency for marketers to focus more on activities like promotion, product development, and market research while prioritizing their responsibilities. These are often perceived as the more interesting aspects of the product and marketing mix. However, pricing needs to be given its due attention since it has great impact on the rest of the activities and the company. Pricing is of vital importance because of the following reasons.