Pricing strategies for products or services encompass three main ways to improve profits. These are that the business owner can cut costs or sell more, or find more profit with a better pricing strategy. When costs are already at their lowest and sales are hard to find, adopting a better pricing strategy is a key option to stay viable.
Merely raising
prices is not always the answer, especially in a poor economy. Many businesses
have been lost because they priced themselves out of the marketplace. On the
other hand, many business and sales staff leave "money on the table".
One strategy does not fit all, so adopting a pricing strategy is a learning
curve when studying the needs and behaviors of customers and clients.
The pricing strategy varies from stage to stage over
the life cycle of a product, depending on the market conditions. i. Introduction
stage: A new product may simply be either another brand name added to the
existing ones or an altogether new product. Pricing a new brand for which there
are many substitutes available in market is not a big problem as pricing a new
product for which close substitutes are not available.
There are
two type of pricing strategies for new product:
Skimming
price policy: - Selling a product at
a high price, sacrificing high sales to gain a high profit, therefore
‘skimming’ the market. Usually employed to reimburse the cost of investment of
the original research into the product - commonly used in electronic markets
when a new range, such as DVD players, are firstly dispatched into the market
at a high price.
Penetration
price policy: - This pricing policy
is adopted generally in the case of new product for which substitutes are
available. This policy requires fixing a lower initial price designed to
penetrate the market as quickly as possible.
Pricing in maturity stage:- Maturity
period is the second stage in the life cycle of a product. It can define for
all practical purposes as the period of zero growth rates. The concept of
maturity period is useful to the extent it gives out signals for taking
precaution with regard to pricing policy.
Pricing a product in decline: - The product in decline is one that enters the post-maturity stage. During this stage, the total sale of the product starts declining. The first step in pricing strategy at this stage is obviously to reduce the price with the objective of retaining sales at some minimum level.