Pricing Strategies in Marketing
The second “P” in the marketing mix stands for “Price”. the primary goal is to find the optimal price for your product. Their own costs, strategic positioning, and competition are important influencing factors for pricing.
Other factors of the price policy are the right price model, discount campaigns or attractive financing models, which can be a positive incentive for a purchase decision.
A price is an important tool in the marketing mix – as a directly recognizable differentiating feature, the price, in particular, is used by the interested customer as a guide when making the purchase decision. As a rule, a higher price is associated with better quality while a low price is associated with low quality. It is, therefore, necessary to determine the appropriate price for the pricing of your product.
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In addition to the goal of increasing the profit for your company through an ideal price strategy, you should not neglect the competitors and your own costs. The positioning that you have already defined under Business Strategy in Business Plan is also relevant for pricing.
In addition to pricing, the marketing mix also includes other elements of the pricing policy. Properly used, you can create an incentive for a purchase decision with a carefully prepared price policy. Which pricing strategies you can use and why a 9.99 Euro price design makes sense, you will find below.
The Pricing Strategies
Pricing: Relevant influencing factors
Finding the “right” price is an impossible task – after all, pricing is always a matter of weighing up different factors (eg price/sales volume, turnover/profit, influence on competition behavior, etc.) Is to determine a price which is appropriate for your company, so that you can take the following factors into account when pricing:
Basis of the price formation: The self-costs
The basis for the price formation is the price covering price (price, at which you can cover the self-costs). When calculating self-costs, the first step is to determine the cost per unit (product = piece, service = hourly rate). If you have calculated your own costs, you can add the desired profit per unit, the profit margin, to the sales price.
Do not forget the competition!
Once you have determined the selling price, you should deal with your competitors. Check what market prices are and whether your fixed sales price is realistic. For this, you usually have to conduct market research.
This could be useful in the VR sector letter, where you can find figures and data on the cost structure and the average profit margin of the respective sector. If necessary, also look at the Internet, at what prices competitive products are offered on online portals such as billiger.de or amazon.de.
Pricing Check: Is the price suitable for positioning?
In the chapter on Corporate Strategy, you have defined the positioning and thus answered the question of whether you would rather offer cost-effective products than high-quality leaders in the premium segment or whether you pursue a less price-sensitive strategy than niche providers.
Now you should check whether the selling price you defined matches your positioning. If this is not the case, you need to think about pricing again or adjust the strategy.
Creating attractive price models
In the case of pricing, as the first element of the price policy, you have calculated the selling price and the minimum selling price (that is, the price you must at least achieve in order to cover your own costs). With further elements of the price policy, it is now about creating additional incentives for your product.
Pricing: The psychological 0.99
Although we round up all mathematically, it makes a psychological difference, however, whether you pay 99.99 euros or 100.00 euros. Observe the psychologically important limit and use it in your price policy, especially if you are pursuing a low-price strategy. However, this factor is less relevant for premium positioning.
Fluctuating or fixed-price strategy?
Depending on the business model, it may make sense to offer customers a constantly favorable price (eg a consistently favorable price policy is an important component of Wal-Mart’s business strategy, which can thus reduce demand fluctuation). In most industries, however, it is common to use different incentive systems of the price policy. These include, for example, discount deals (2 for 1), clearance sale and storage (-25%) or season prices (the more you buy, the cheaper the unit price). Often service is offered for a certain period of time (eg the first 2 weeks free) or it is lured with a trial subscription at a reduced price.
For which instruments of the price policy you choose, you should stick to the business plan.
Limitation: Using the factor time for your price policy
By limiting your perks, eg to a certain time, you can create additional purchase incentives. There is a feeling of scarcity, which generally has a positive impact on the sales figures – use this psychological factor in the case of price policy.
An important part of the price policy for investment goods (eg machines, cars, etc.) is the payment conditions. Longer payment periods, attractive financing offers or discounts can be a reason why a customer decides for your product.
do not forget the effects on your business model. Discounts can reduce profits (if you are not able to sell anymore) and interesting financing offers have a negative effect on liquidity. You have to be prepared for big discount campaigns, as you may suddenly have to double twice or three times as much and have to have the warehouse full.
We advise you to use the instruments of the price policy specifically. At the beginning, use only one or two instruments – others you can add relatively easily; Is difficult (customers quickly get used to price policy).
The aim is that you represent the cost of a unit (product or hour) in your business plan and explain which sales price you want to calculate. In addition to pricing, you should mention the other elements of the pricing policy that are relevant to your company. Explain which pricing policy you are pursuing and why the selected instruments fit into your company strategy and positioning.
If you are in the marketing mix with the second “P”, you should consider how and where you bring your product to the woman and/or man – it goes further with the distribution policy in the marketing mix (the third “P” in the marketing mix stands for Place)!