Pricing Mix

Price mix. is another important element of marketing mix. It is considered as very critical element. Price can be defined as the economic value of product normally expressed in form of money.

The price of product should be set in such a way that buyers can pay and company can earn adequate profits. In case of price-sensitive customers on one hand and the prestige-sensitive customers on the other hand, the pricing decisions become vital in marketing.

Pricing decisions involves:

• Determining product development costs
• Determining manufacturing (variable and fixed) costs the product
• Studying pricing policies and strategies of the close competitors
• Formulating appropriate pricing policies for the products
• Deciding on level or margin of profits
• Deciding on variable v/s fixed pricing, price discrimination, discounts, allowances, and seasonal effect
• Identifying and analyzing of various relevant factors influencing pricing decisions
• Pricing policies/strategies in different stages of product life cycle
• Deciding on price-setting methods
• Pricing decisions for direct and indirect distribution of products

Pricing Strategy

Price is the amount of money that your customers have to pay in exchange for your product or service. Determining the right price for your product can be a bit tricky.

A common strategy for beginning small businesses is creating a bargain pricing impression by pricing their product lower than their competitors. Although this may boost initial sales, low price usually equates to low quality and this may not be what customers to see in your product.

Your pricing strategy should reflect your product’s positioning in the market and the resulting price should cover the cost per item and the profit margin. The amount should not project your business as timid or greedy.

Low pricing hinders your business’ growth while high pricing kicks you out of the competition.

There are a number of pricing strategies that you can follow. Some strategies may call for complex computation methods and others are intuitive decisions. Select a pricing strategy that’s based on the product itself, competitive environment, customer demand, and other products that you offer.

Cost Plus

Cost Plus is taking the production cost and adding a certain profit percentage. The resulting amount will be the product’s price. You need to consider variable and fixed production costs for this pricing method.

Value Based

Instead of using the production cost as your basis, you consider the customer’s perception of the product’s value. The perception of the buyer is dependent on the product’s quality, the company’s reputation, and healthfulness, aside from the cost factors.

Competitive

You take a survey of the pricing implemented by your competitors on a similar product that you are trying to market and then decide whether to price your product lower, the same, or higher. You should also monitor their prices and be able to respond to changes.

• Going Rate: This pricing strategy is more common in selling environments where the companies have little to no control of the market price. You price your product according to the going rate of similar products
• Skimming: You introduce a high quality product, price it high, and target affluent customers. When the market has become saturated, you then lower the price accordingly.
• Discount: Most commonly used for old product stocks or when you’re clearing up you inventory. You take the advertised price and lower the amount. A good example is a discount coupon.
• Loss Leader: You take the production cost and price the product even lower. The idea is to attract your customers to your store where they can be convinced to buy your other products.
• Psychological: You may have noticed that you rarely see pricing rounded off to the nearest whole number.

The actual money you will receive as payment for your product can be complicated by certain pricing factors so you may receive more or less than the advertised price. You need to determine the following in coming up with the appropriate price:

• Payment Period: This is the length of time before you receive the payment.
• Allowance: You give part of the advertised price to the retailer in return for promotional activities like in-store display that features your product.
• Seasonal Allowances: You lower the price of certain products ordered during low sale seasons to attract customers to buy during non-peak times.
• Product/Services Bundles: You put in similar or dissimilar products together and sell them as a bundle at a discounted price
• Trade Discounts: You give price discounts as payments to your distribution channels for doing tasks like shelf stocking and warehousing.
• Price Flexibility: You let the reseller or the sales person modify the price according to an agreed range.
• Volume Discounts: You give discounts for wholesale buyers.
• Credit Terms: You allow consumers to pay for your products at a later date.

Base your pricing strategy on the methods mentioned above to come up with the proper price for your product. Remember that Price is the only P in the ‘Four Ps of Marketing’ that actually generates profit for you. The rest are cost incurring factors.