Question - Please response to the market pricing strategies discussions.
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Answer -
Pricing is such a factor which determines the stability of company as well as success of product in the industry. Price is a monitory value which you get in return for product you offered, here two things go hand in hand one is price another one is life cycle of the product, so it's necessary for the company to keep its pricing strategy flexible in order to make changes in price as it moves to different stage of life cycle. As product moves through 5 stages introduction, growth, maturity, decline and withdrawal, at the initial stage of life cycle price tends to be high later on it has to be kept low in order to keep stand in market.
Product life cycle and pricing
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Introduction
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Skimming or penetration pricing strategy
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Growth
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Keep same pricing as kept in introduction stage
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Maturity
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Low pricing to prevent competitors
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Decline
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Economy pricing with differentiating or rejuvenating
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withdrawal
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Introduction of new product
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Main thing to be kept in mind during formulation of pricing strategy is objective of company, depending on objective we need to set a pricing strategy and objective can be,
1. Profit maximization
2. Maximize market share
3. ROI
4. Prevent competition
5. Be a leader of quality product
6. Surviving market for long time
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OBJECTIVE OF COMPANY
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PRICING STRATEGY
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Profit maximization
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In order to maximize the profit company has to go for skimming pricing that to keep price high there by generate high return.
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Maximize market share
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In order to gain large market share it can go for penetration pricing, where company needs to fix minimum pricing which attracts maximum number of potential customers from different region there by helps in capturing large market share in short period of time.
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Return on investment
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When we newly introduce product it involves investment in different fields like product innovation and development, fixed as well as variable cost, marketing as well as promotional cost, so in order to cover all these cost during initial stage of product life cycle you need to set cost plus pricing.
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Prevent competition
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You get more competitors during maturity stage but you can prevent competitors from entering market at initial stage itself by way of preventive pricing policy that is keeping low price.
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Be a leader of quality product
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Common myth among customers is that high price means high quality so in order to be a leader of quality product you need to go for skimming pricing.
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Survive market for long period
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In order to survive in market for long time you need to keep watch on market at each stage of life cycle. As you move on in life cycle of product you need to incorporate some add-on strategies like,
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- Complementary products - availability of spare parts of product promotes the customers to buy our product as it increases the life of product for customer.
- Replacing offer - we can keep replacing offer so that customer keep on buying our products.
- Buyback offer
- Customizing offer - one of the increasing trend in customers market is getting products done according to their test and preference, when company keeps customizing offer customer will prefer buying product from the company to get unique and standardized product and those customers are premium customers so that even company can make high profit out of it.
- Diversification - to survive in market you need to diversify the product by adding improved product or new product.
Chistrial Cooper
He considered objective of company and incorporated idea so lowering the manufacturing as well as labour cost in order to maximize the profits and he also included some add-ons like
- Complementary products - Availability of spare parts of the product.
- Replacing offer - Old or small bike with new one.
- Buyback offer
- Customizing option - According to taste and comfertability of customer.
As product moves to different stages only lowering price is not an option to stay in the market, we can adopt add-ons to make our customers coming back to us.
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Donna Blackman
When we are introducing product for the first time our objective should be positioning of product in 3 segments that is Recreation, Mountain, and Speed, which allows us to have different pricing points based on need of each simulated segments that means we can go for multiple pricing strategies.
For Recreation - ready to pay for comfort and ease but its price sensitive.
Mountain - ready to pay for added features.
Speed - ready to pay for those features which will keep them ahead of competitive riders.
Under multiple pricing strategy also we need to consider life cycle and then we should fix price like cost plus pricing, penetration pricing, best competitive price and cut price.
Arlhelt Monroe
He says that demand is a vital factor which needs to be considered in setting price for the product and on the basis of that he suggests different pricing strategies at each stage, at the introduction stage he suggest low pricing to capture the market so that we can increase the demand for product and skim pricing to cover developmental cost and we need to maintain same pricing in growth stage, then when demand starts declining at some point in maturity we need to lower the price. One more option we have for last stage of life cycle is differentiating, rejuvenating the product or discontinue the product.
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Randy Flores
Here suggestion is given to opt for "product-market expansion grid" or a market penetration strategy" during growth stage of life cycle, we need to choose 1 of the 4 options market penetration, market development, product development and diversification to keep moving in the market but at the initial stage we need to keep price high.
Jamie Vega
We should set price in such a way that it should generate high profit, price is such a factor that decides whether company incurs profit or loss and even the demand for product. Market penetration strategy is best strategy with low risk factor with which company can move a head in growth stage. One more point to be noted over here is advice to increase the price as product moves in cycle in order to increase the profit.
Patrick Griesghia
Pricing should be such that it should increase the demand for product for that we need to do is lower the price or differentiate the product so that we can increase competitive advantage. Economy of pricing is important to keep generating revenue at final stage of life cycle.
So, one common suggestion over here is flexible pricing strategy to suit each stage of life cycle and alternatives like add-ons and penetration strategies to increase the life of product in industry. We can use "product-market expansion grid" to take decision at decline stage of product life cycle where we get clear picture about next step and when we have different segments we need to adopt multiple pricing strategies to suit each segment. So pricing is not a simple task you need to have continues progress in you pricing strategies.
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