Pricing - In a Nutshell
Weekend has arrived and I know most of you are thinking about the Grocery shopping that you have to do, the gift that you have to get for your friend and winter dresses to put in stock as it is nearing.
Have you ever thought how the Manufacturer enlists the product’s price? How do they come up with a price for a particular product? How does the pricing factor differs for each product? Why does my Folger’s coffee that I drink daily cannot cost 99cents or 12$ instead of 4.95$? Here is the strategy and the different categories that are available.
There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations.
1. When there is an uniqueness on a product or service, it would be rated high. This is called Premium Pricing. It is rated high because it has a substantial competitive advantage than others. E.g.: Cunard Cruises, Savoy Hotel rooms, and Concorde flights.
2. To gain market share, certain products will be set artificially low and once it is achieved, the price will be increased. This is called Penetration Pricing.
3. Economy Pricing is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.
4. Here comes the Psychological pricing. This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example marking products as 'price point perspective' 99 cents and not one dollar.
5. Where there is a range of product or services the pricing reflect the benefits of parts of the range, Manufacturers go for Product Line Pricing. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.
6. Captive Product Pricing - Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.
7. Sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach. This is Product Bundle pricing.
8. This is the most favourite for the general crowd – To buy one and get one free. Pricing to promote a product is a very common application. This is Promotional Pricing.
9. Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.
10. External factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds. This is called ‘Value Pricing’.
Have you ever thought how the Manufacturer enlists the product’s price? How do they come up with a price for a particular product? How does the pricing factor differs for each product? Why does my Folger’s coffee that I drink daily cannot cost 99cents or 12$ instead of 4.95$? Here is the strategy and the different categories that are available.
There are many ways to price a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations.
1. When there is an uniqueness on a product or service, it would be rated high. This is called Premium Pricing. It is rated high because it has a substantial competitive advantage than others. E.g.: Cunard Cruises, Savoy Hotel rooms, and Concorde flights.
2. To gain market share, certain products will be set artificially low and once it is achieved, the price will be increased. This is called Penetration Pricing.
3. Economy Pricing is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.
4. Here comes the Psychological pricing. This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example marking products as 'price point perspective' 99 cents and not one dollar.
5. Where there is a range of product or services the pricing reflect the benefits of parts of the range, Manufacturers go for Product Line Pricing. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6.
6. Captive Product Pricing - Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor.
7. Sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach. This is Product Bundle pricing.
8. This is the most favourite for the general crowd – To buy one and get one free. Pricing to promote a product is a very common application. This is Promotional Pricing.
9. Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.
10. External factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds. This is called ‘Value Pricing’.
This is basically all about Consumer Pricing but there are concepts on IT Business Pricing too which I am yet to explore :)
posted by Raji @ 8/17/2007 04:36:00 PM
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