A business can use a variety of pricing strategies when selling a product or service. The price can be set to maximize profitability for each unit sold or from the market overall. It can be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market and effect of 4ps of marketing
Amongst all these Ps, ” price” is the most important aspect of marketing mix. it is the only P out of the 4Ps which is CASH GENERATOR . The rest of the Ps, viz., Product , Place and promotion are cash gurgles.
Marketing strategies over a period of time have resolved around the 4Ps of marketing .
Moreover ” price ” is the most flexible elements of the marketing mix because it can be changed frequently and prominently unlike the product features, promotion aspects or the channel commitments .
The pricing objective essentially depends on the company and type of business that it is in. Thus, the company objective could be that the company needs a minimum 15 % return on sales or 20% return on investment .
It is also dependent on the type of business that the company is for e.g., the pricing objective would be different when the company is in volume- based business or in a niche – based business. For the marketing manager , capacity utilization and competitor are the two main drivers of the pricing the strategy.
capacity utilization directly leads to the cost of the product while competition stems out of the customer perception about the product vis – a vis the competitor’s product .
Derived out of these two important drivers , the marketing manager essentially decides whether to use the survival strategy , the maximization of the current profit strategy , maximize current revenue , maximize sales growth , maximize market skimming or the product quality leadership pricing or any other pricing strategy
Survival : Companies pursue survival as their major objective if they are plagued with over capacity, intense competition or changing customer wants. to keep the plant operating and the inventories turning over they will cut prices . Profit are less important than survivals . As Long as prices cover variable costs and some fixed costs, the companies stay in business. However , Survival is only a short run objective. In the long run the firm must know how to add value or face extinction
Maximum Market Skimming using 4Ps of marketing .:
Many companies favor setting high prices to ” Skim ” the market . Market skimming makes sense under the following conditions:
- Sufficient number of buyers have a high current demand .
- The unit cost of producing a small volume are not so high they cancel the advantage of charging what the customer is willing to pay . Many marketers presume that customer are willing to pay a high price because of a high quality , which may not be filly true .
Maximize Current Profit :
Many companies try to set the price that will maximize current profit . they estimate the demand and cost associated with alternative prices and choose the price that produces maximum current profit , cash flow or rate of return on investment, there are problems associated with current profit maximization .
this strategy assumes that the firm has knowledge of its demand and cross functions. In reality , these are difficult to estimate, also , by emphasizing current financial performance the company may sacrifice long run performance , ignoring the effects of other marketing mix variables , competitor’s reactions and legal restraints on price .
Product Quality Leadership :-
A company might aim to be the product quality leader in the market . May companies’ Premium Quality / Premium Price strategy has earned them a consistently higher rate of return in its industry .
Maximize Current Revenue :
Some companies want to maximize unit sales, they believe that a higher sales volume will land lower unit cost and higher long run profits. They set the lowest price, assuming the marker is price sensitive, their practice is called market penetrations pricing.
The following conditions favor setting a low price:
- The market is highly price sensitive and a low price stimulates market growth.
- Productions and distributions cost fall with accumulated production experience.
- A low price discourage actual and potential competitions.
Other Pricing objectives: Non – Profit and public organization may adopt a number of other pricing objectives. A university aims for partial cost recovery , Knowing that it must rely on private gift and public grant to cover the running cost .
A non- profit hospital may aim for full cost recovery in its pricing. A non – Profit theatre company may price its production to fill the maximum number of theatre seats . A social service agency may set of all these strategies .Survival , Maximize current profit and maximize sales growth are the most important price tools available to the marketers.