MARKETING AND PRICING

Marketing and Pricing

Marketing and Pricing

Introduction

Pricing is probably one of the most difficult aspects of the marketing plan for a small business yet the most crucial, if a profit is to be made. Setting prices is an art, not a science. It's the art of striking a balance between what you need to stay in business and the market's perception of what your product is worth. Determining what to charge for your product is one of the toughest, trickiest, and earliest decisions you'll experience. You'll be out of business if you don't charge enough or you over price your product,

Discussion

Effectively pricing a product or service can be a challenge. The job can be made a little easier if run a process consisting of four separate (yet on-going) phases. The phases are:

Establish a pricing strategy for the new product or services

Create a pricing policy for the new product or services

Assign specific price levels

Review and maintain pricing for existing products or services

Each of these phases will likely be restarted and reassessed several times during the effective life cycle of the product or service. This reassessment may be triggered by any number of internal/external factors including entering a new phase of the product life cycle, (Kane 2004 3-8) changes in the competitive or regulatory environment, changing market dynamics, and short term promotional initiatives.

Pricing Strategy

The pricing strategy is simply a statement of what are trying to accomplish with a given product or service at a given point in time. It must be consistent with overall corporate goals and objectives. Depending on the scope of company product line and the markets served, the pricing strategy may or may not be the same for all product lines and will likely require change over time. Most pricing strategies will flow from one of two overriding objectives that a company will establish for a particular product or service. They are:

Maximize revenue and profit or

Maximize market penetration

The objective may then be fine tuned by attributes that intensify the intended effect, such as, penetration pricing, follow the leader pricing, loss leader pricing, and cost plus pricing, phase-out pricing, skim pricing, etc. Development of the pricing strategy is usually the domain of senior management.

Pricing Policy

Pricing policy is the vehicle that companies use to calculate and communicate cost and what is included to the customer. To the extent that cost is equal to or less than the customer's perceived value, company ability to sell will be enhanced. The best pricing policies benefit the company as well as the customer. Pricing policies are generally based upon a metric that is used to calculate cost for the product or service. Company target audience will often dictate the appropriate metric for the pricing model because it will make sense to them (Abken 2003 93-116). Developing an effective pricing model is largely a function of how well company understand market and target audience. Product marketing should drive the development of the pricing model and obtain approval from senior management prior to establishing the special dollar amounts ...