Pricing strategy is the tactic that company use to increase sales and maximising profits by selling their goods and services for appropriate prices. It is the policy a firm adopts to determine what it will charge for its products and services. Marketing’s four Ps – product, price, promotion and placement – the basic components of any marketing mix. The decisions you make with regard to all of these elements can mean the difference between success and failure. There are many factors that will have an influence on how you set the price for your product or service, with some of them internal and some external , and most of them will fluctuate over time.
4 P's of Marketing Mix
- Cost : While fixing the price of a product, the cost involved in producing the product. This cost includes both the variable and fixed costs. Thus, while fixing the prices, the firm must be able to recover both the variable and fixing costs.
- THE PREDETETMINED OBJECTIVES : While fixing the prices of the product, the marketer should considers the objectives of the firm. For instance, if the objectives of a firm is to increase return on investment, then it may charge a higher price, and if the objective is to capture a large market share, then it may charge a lower price.
- IMAGE OF THE FIRM : The price of the product may also be determined on the basis of the image of the firm in the market.
- PRODUCT LIFE CYCLE : The stage at which the product is in its product life cycle also affects its price. For instance, during the introductory stage the firm may charge lower price to attract the customers, and during the growth stage, a firm may increase the price.
- CREDIT PERIOD OFFERED : The pricing of the product is also affected by the credit period offered by the company. Longer the credit period, higher may be the price, and short the credit period, lower may be the price of the product.
- PROMOTIONAL ACTIVITY : The promotional activity undertaken by the film also determines the price. If the firm incurs heavy advertising and sales promotion costs, then the pricing product shall be kept high on order to recover the cost.
- COMPETITION : While fixing the price of the product, the firm needs to study the degree of competition in the market. If there is high competition, the prices may be kept low to effectively face the competition, and if competition is low, the prices may be kept high.
- CONSUMERS : The marketer should consider various consumer factors while fixing the prices. The consumers’ factor that must be considered includes the price sensitivity of the buyer, purchasing power, and so on.
- GOVERNMENT CONTROL : Government rule and regulation must be considered while fixing the price. In certain products, government may announce administered prices, and therefore the marketer has to consider such regulation while fixing the prices.
- ECONOMIC CONDITIONS : The marketer may also have to consider the economic condition prevailing in the market while fixing the prices. At the time of recession, the consumer may have less money to spend, so the marketer may reduce.
- CHANNEL INTERMEDIARIES : The marketer must consider a near of channel intermediaries and their expectation. The longer the chain of intermediaries, the higher would be the prices of the goods.