Pricing in the Marketing Mix
Price is an important element of the marketing mix. Describe the importance of pricing in the marketing mix. Describe three different pricing strategies and provide a real-life example of each in action.
Suggest another strategy that would have worked better. What are the steps that need to be followed for developing the pricing of a new product?
Can these steps be interchanged? Why?
Price determines the value of a product. It is one of the important elements of marketing mix to define the values and quality of the product. This paper explains the importance of pricing. Apart from this, by means of this paper, the reader would be able to understand three different kinds of pricing strategies and their use in real life through different examples, Moreover, reader would also gain knowledge about another strategy that can work better and different steps for pricing of new product.
Importance of Pricing
In today’s economic era, the market has become competitive, in which it is essential for them to regularly introduce new and innovative products with high quality. As the competition is high, consumers have many substitutes of a single product, this price is an essential factor that influences their behavior to purchase the company’s product (Product marketing mix assignment help). Mostly, consumers attract towards that product, which have low prices and high quality.
Apart from this, due to the globalization, it has also become easier for the consumers to get a product at their locations, thus they always seek for high-quality products with brand name and low price. According to Kopalle et al. (Marketing Plan Budget Analysis Assignment Help) price determination is essential to introduce new products to attract potential customers and retain current customers. It is one of the significant elements to become successful in the market and achieve a competitive advantage over rivals.
Three Different Pricing Strategies
There are several different pricing strategies and the selection of these strategies mainly depends on the range and categories of products. Three different kinds of pricing strategies are cost-plus pricing, market-oriented pricing and penetration pricing. For instance, in the automobile industry, three competitors, Ford, General Motors and Toyota have decided price of their products on the basis of these pricing strategies. Ford manufactures luxury cars and the pricing strategy of Ford Motors is one price for all.
Ford’s strategy is based on the concept of reducing production costs to continuously gain market shares and attracts consumer, who belong to high-class society. Thus, the price strategy of Ford Motors is Cost plus pricing, as it always tries to minimize the operating cost to maintain high market shares. The company decides prices by including profit on its basic cost (Marketing Advertising Plan Assignment Help). It believes that market and customers determine the selling price and if the company reduces the cost the profit growth will increase. On the other hand, market-oriented pricing is used by General Motors. General Motors wants to exceed Ford and become the number one car company.
It believes in the strategy of ‘a car for every purse and purpose’ (Online Advertising Assignment Help). It manufactures cars for all sections and targeted consumers on the basis of income level. It segmented the market and made cars according to the taste and style of the consumers. Thus, pricing strategy of General Motors is based on market-oriented pricing. In case of Toyota, company is following penetration marketing strategy, a company is offering high quality but low prices on their cars (Marketing Positioning Assignment Help). Toyota is maintaining high quality by reducing cost effectively through waste elimination.
Another Strategy for These Companies
On the basis of above example, another suitable pricing strategy for automobile companies is Price Discrimination. According to this pricing strategy, in order to maintain price war and to increase profit margin in competitive market, companies should control their price and improve quality. Companies should understand the requirements of different target market and segments and different prices with different quality to different segment. For instance, Ford, Toyota and GM can introduce different cars for different groups on the basis of age, gender, business class, family orientation, etc. and prices of these products should be based on the income level, such as high-class individual would prefer to buy a classic and luxury car to maintain their status, whereas, a medium class individual would prefer to buy a car to provide comfort to his family (Market Analysis Assignment Help).
Steps to Develop Pricing for New Products In order to develop pricing for new products, different steps are as follows:
Determination of category: First, the company should have to determine that in which category its product goes.
Competitors Analysis: After this, company should identify the competitors and their pricing strategies to understand the value of their own products and to reach a specific conclusion to decide price (Pricing Decision Assignment Help).
Determine the Maximum and Minimum Prices: After evaluating the competitor’s price and opportunities available in the market, company should analyze the maximum and minimum price for new product (Target Pricing Assignment Help).
Determination of Pricing Strategy: After analyzing the competitor’s pricing strategy and company should also think over different pricing strategies to attract customers. This pricing strategy should different with competitors, so that company can attract high number of customers. For the new products, firm should follow price discrimination or penetration strategy.
Determine the Basic Cost of the Product and Decide the Profit Margin: After identifying the maximum and minimum prices of the product in the market, company should calculate its cost and expected profit margin that calculates final cost as per the competitors’ price to attract customers. The profit margin should be low at initial level to increase customer base. In order to develop pricing for new products, in this process, step 2 and 3 can be interchanged as analysis of both steps; maximum and minimum price and competitor’s position would lead the company to identify the pricing strategy of company and to understand that, in the market which strategy is suitable for the new product (Marketing Strategy Assignment Help).
Conclusion Thus, on the basis of above discussion, it can be concluded that pricing is a one of the significant factor that plays an imperative role in the success of the firm and to increase market shares. Different kinds of pricing strategies are used by different firms to capture high market shares.