pricing
136 - Unit 2: Marketing Plan: Pricing Strategies
Pricing Strategies
There is no limit to the number of variations in pricing strategies and tactics. This wide variety of options is exactly what allows small business owners to be so creative. Pricing always plays a critical role in a firm’s overall strategy: pricing policies must be compatible with a company’s total marketing plan.
Introducing a New Product
Most small business owners approach setting the price of a new product with a great deal of apprehension because they have no precedent on which to base their decision. If the new product’s price is excessively high, it is in danger of failing because of low sales volume.
However, if it is priced too low, the product’s sales revenue might not cover costs. When pricing any new product, the owner should try to satisfy these objectives:
1. Getting the product accepted. No matter how unusual a product is, its price must be acceptable to the firm’s potential customers.
2. Maintaining market share as competition grows. If a new product is successful, competitors will enter the market, and the small company must work to expand or at least maintain its market share. Continuously reappraising the product’s price in conjunction with special advertising and promotion techniques helps to retain a satisfactory market share.
3. Earning a profit. Obviously, a small firm must establish a price for the new product higher than its cost. Entrepreneurs should not introduce a new product at a price below cost because it is much easier to lower a price than to increase it once the product is on the market.
Small business owners have three basic strategies to choose from when establishing a new product’s price: a penetration pricing strategy, a skimming pricing strategy, and a sliding –down the demand curve strategy.
Market penetration. If a business introduces a product into a highly competitive market in which a large number of similar products are competing
Pricing Strategies
There is no limit to the number of variations in pricing strategies and tactics. This wide variety of options is exactly what allows small business owners to be so creative. Pricing always plays a critical role in a firm’s overall strategy: pricing policies must be compatible with a company’s total marketing plan.
Introducing a New Product
Most small business owners approach setting the price of a new product with a great deal of apprehension because they have no precedent on which to base their decision. If the new product’s price is excessively high, it is in danger of failing because of low sales volume.
However, if it is priced too low, the product’s sales revenue might not cover costs. When pricing any new product, the owner should try to satisfy these objectives:
1. Getting the product accepted. No matter how unusual a product is, its price must be acceptable to the firm’s potential customers.
2. Maintaining market share as competition grows. If a new product is successful, competitors will enter the market, and the small company must work to expand or at least maintain its market share. Continuously reappraising the product’s price in conjunction with special advertising and promotion techniques helps to retain a satisfactory market share.
3. Earning a profit. Obviously, a small firm must establish a price for the new product higher than its cost. Entrepreneurs should not introduce a new product at a price below cost because it is much easier to lower a price than to increase it once the product is on the market.
Small business owners have three basic strategies to choose from when establishing a new product’s price: a penetration pricing strategy, a skimming pricing strategy, and a sliding –down the demand curve strategy.
Market penetration. If a business introduces a product into a highly competitive market in which a large number of similar products are competing