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price management economic
When starting pricing, an entrepreneur must first determine what goals he wants to achieve through the sale of this product. In normal practice, you need to learn to find and implement, with the help of a pricing policy, a weighted optimal ratio of as many goals as possible. The most significant goals of business activity, the achievement of which pricing is intended to serve, are:
Further existence of the company. To continue production and liquidate inventory, prices are often reduced. At the same time, profit loses its importance. However, the mere continuation of the firm's existence can only be seen as a short-term goal;
Short-term profit maximization. In this case, the emphasis is placed on short-term expectations of profit and does not take into account long term prospects, determined by the use of all other elements of the marketing strategy, as well as the counteracting policies of competitors and regulating the activities of the state;
Short-term maximization of turnover. The product is manufactured corporately and therefore it is difficult to determine the complex structure and cost function. Only the demand function is determined. The goal is achieved by setting a commission percentage on sales volume.
Maximum increase in sales. Firms believe that an increase in sales volume will lead to lower unit costs and, ultimately, to increased profits. The price is set a little lower. A low price policy is justified if: the market sensitivity to prices is very high; production and distribution costs can be reduced by expanding production volumes; lower prices will scare away competitors.
- “skimming the cream” from the market by setting high prices.
Leadership in quality. A company that manages to secure such a reputation then establishes high price, to cover the high costs associated with improving quality and the R&D required for this. The stated goals of pricing policy are related to each other in a certain way, and do not always coincide.
However, all of them together must serve to achieve a more general dominant goal - long-term profit maximization.
TO external factors pricing processes include:
Consumers. This factor always occupies a dominant position in modern marketing.
Market environment. This factor is characterized by the degree of competition in the market. Here it is important to highlight whether the enterprise is an outsider or a leader, whether it belongs to a group of leaders or outsiders.
Participants in distribution channels. At this stage, both suppliers and intermediaries influence the price. Moreover, it is important to note that the greatest danger for the manufacturer is the increase in energy prices, which is why the state is trying to control this industry.
The state influences the price through indirect taxes on business, establishing antitrust and dumping bans.
There are two approaches to the process of market pricing: establishing individual or uniform prices.
The individual price is determined on a contractual basis between the seller and the buyer, leading to agreement on both sides.
Single price - buyers purchase goods at the same price.
The establishment of uniform prices for all consumers may be due to the characteristics of the market for a given product or to technical complexity and large additional costs when differentiating prices. Uniform prices are preferable primarily where an entrepreneur brings a standardized mass-produced product to the mass market.
In these conditions, it is important that the mass consumer knows the price, can compare it with the price of competing products and make a purchasing decision with relative ease. Pricing is the only element of the marketing system that does not involve significant costs. At the same time, the pricing policy of many companies is not sufficiently developed and contains many errors. The most common mistakes are: pricing is too cost-oriented; prices do not adjust frequently enough to changing market conditions; price is considered in isolation from other elements of the marketing system (“marketing mix”); prices are not sufficiently structured by individual product options and market segments.
The above fully applies to modern Russian enterprises that are switching to market pricing methods and are forced to form one or another pricing policy themselves (Table 1.1.).
The pricing policy of most enterprises is to cover costs and make a certain normal profit. A number of enterprises sell goods as expensive as possible. This indicates a lack of necessary experience and knowledge in the field of pricing policy. That's why it's important to study various options the company's pricing policy, features, conditions and benefits of their application.
Table 1.1. Market pricing methods
Pricing is relevant when the initial price level is established: development of a new product; introduction into new geographic markets or new distribution channels.
A company must position its product in the market by choosing the right combination between its price and quality. There are various strategic options that can be illustrated in general view the following table 1.2:
Strategies 1.5 and 9 can be used simultaneously in the same market. Price differentiation depending on quality. The conditions for simultaneous use are the presence of appropriate layers of consumers who have a demand for products of different quality and price.
Strategy 2,4,6,8 are transitional.
Strategy 2,3,6 displacing a competitor from 1,5,9.
Strategy 4,7,8 of inflating prices in relation to the beneficial effect of the product.
Table 1.2. Pricing Strategies
The initial pricing process should include the following sequential steps: defining pricing policy objectives; determination of demand; cost estimation; analysis of competitors' offers and prices; choosing a pricing method; making a decision on the price level. Identify the main problems and difficulties encountered at each of these stages.
Pricing strategy is the choice by an enterprise of a strategy according to which the initial price of a product should change with maximum success for it, in the process of conquering the market. Different strategies should be distinguished depending on the product (new or existing).
The skim pricing strategy involves first selling a product at a very high price to that segment of society that does not care about financial collapse, then the price is gradually reduced to the level of the middle class, and then to the level of mass consumption.
The price increase strategy is effective only when the demand for the product is growing steadily, competition is minimized, and the buyer recognizes the product.
There are also penetration pricing, slide-down pricing, and preemptive pricing strategies.
The market undoubtedly influences the manufacturer and forces him to adjust the price various methods. Marketers have identified eight main methods for price adjustment, which helps the entrepreneur choose the most optimal one and reduce costs.
Method of establishing long-term and flexible prices. The manufacturer can set a flexible price for the product depending on the time or place of sale. You can also set a standard price, but slightly change the quality of the product.
Method of setting prices by market segments. In this method, prices vary by market segment, mainly by consumer segment.
Psychological method of setting prices. When using this method, the entrepreneur (mostly the retailer) relies on the psychology of the buyer. Most simplest example- price of teleshopping (97 90 , which is almost 100).
Method of step differentiation. Marketers identify steps (gaps) between prices within which consumer demand remains unchanged.
Method of redistribution of assortment costs. This method takes into account the variety of assortments of the same product, which leads to negligible costs but a significant increase in price.
Method of redistribution of item costs. In this case, the entrepreneur sets in advance a low price for the main product, but a higher price for related products.
Franking method. Franking is payment for the transportation of goods from the seller to the buyer. Here the price is made up of the cost of the product, real transport costs and profit.
Discount method. This method is used to stimulate product sales. Discounts can be due to the quantity of goods purchased or for previous payment.
So, when determining the price, when forecasting its further changes, when adjusting it, it is very important for the entrepreneur not only not to make a mistake, but also to inflate the price, which can directly affect demand and the attitude of buyers towards the company. Therefore, marketers analyze all changes and develop strategies for setting and adjusting prices, which contribute to increased profitability and efficiency.
Method of income but capital. This method is also cost-oriented. A price is set that allows the planned return on capital to be obtained. General Motors calculates prices that provide a return on capital of 15% - 20%.
If sales are below the “breaking point”, then the company suffers losses, and if it is more, it makes a profit. How to overcome losses:
A) An increase in sales volume will lead to an increase in costs. (I 1, K 1).
B) Reduce the volume of production and sales. (I 2, K 2). Reduce fixed costs and increase sales price.
Much depends on the price elasticity of demand and competitors' prices, which is not taken into account in this pricing method.
It is clear why a high price would cause dissatisfaction, but it is not always clear why a low price would cause dissatisfaction.
In the event that a product requires after-sales, warranty or other service, and the price assigned for it is too low, the profit received from the sale is insufficient to continue to serve the client at the proper level. In this case, customers are disappointed in this product, the service provided to them and in this enterprise.
Determining price is one of the most difficult tasks facing any enterprise. And it is the price that determines the success of the enterprise - sales volumes, income, profit received.
Small businesses have a small number of employees, and therefore there are some pricing considerations for such businesses. Firstly, often a small enterprise does not have a separate department that would deal with problems of economic analysis and pricing, and this work has to be done by the manager (owner) of the enterprise, therefore, it is necessary to save time on complex mathematical calculations. Secondly, the range of products of such enterprises, as a rule, is not large.
However, the content of marketing activities for both small and large big business does not change.
The relationship between the concepts of “price” and “profit” is obvious. The higher the price, the higher the profit; the lower the price, the lower the profit. On the other hand, a cheap product or service is easier to sell, and over the same period of time it will be sold in larger volumes than its expensive counterparts. Thus, it is important to establish the relationship between the price of a product and the number of units sold.
There are two main ways to set prices for products: based on the costs of production and marketing of the product and based on market opportunities (purchasing power). The first method is called cost-based pricing, the second is demand-based pricing. The third, less common, but also important method is pricing based on prices for competitive products.
There are several factors that a small business directly influences when choosing a pricing method for its product:
The value factor is one of the most important factors. Each product is able to satisfy the needs of customers to a certain extent. To coordinate the price and utility of a product, you can: give the product greater value, educate the buyer through advertising about the value of the product, adjust the price so that it corresponds to the real value of the product.
Cost factor - costs and profit make up the minimum price of the product. The simplest way to set prices: given known costs and expenses, add an acceptable rate of profit. However, even if the price only covers expenses, there is no guarantee that the product will be purchased. This is why some enterprises go bankrupt; the market can value their goods lower than the cost of production and sale.
Competition factor - competition has a strong influence on pricing policy. You can provoke a surge of competition by setting a high price or eliminate it by setting a minimum price. If a product requires a special production method, or its production is very complex, then low prices will not attract competitors to it, but high prices will tell competitors what they should do.
Sales promotion factor - the price of the product includes a markup that pays for market stimulation measures. When releasing a product to the market, advertising needs to cross the threshold of perception before consumers become aware of the product. All funds spent on sales promotion must subsequently be recouped through product sales.
Distribution Factor - The distribution of a product significantly affects its price. The closer the product is to the consumer, the more expensive it is for the company to distribute it. If the goods are delivered directly to the consumer, then each transaction becomes a separate operation, the money intended for the supplier is received by the manufacturer, but its costs also increase. The advantage of this distribution method is complete control over sales and marketing.
When selling a product to a large retailer or wholesaler, sales are no longer counted in units, but in dozens, but control over sales and marketing is lost. Product distribution is the most important factor in marketing after the product itself. When purchased, a product rarely satisfies the needs of customers completely. Therefore, they make concessions in quality, weight, color, technical data, etc. more or less willingly depending on the price level, but even if a given seller has the lowest prices on the market, no amount of advertising can compensate for the lack of the right product at the right time in the right place.
Finding competent distributors who would actively undertake the sale of goods is a very expensive matter. They will want to be paid for storing goods in warehouses and distributing goods immediately after they are sold. This amount should be included in the price and not exceed similar costs of competitors. Public opinion factor - people usually have some idea about the price of a product, whether it is consumer or industrial. When purchasing a product, they are guided by certain price limits, or price radii, which determine the price at which they are willing to buy the product.
The enterprise must either not go beyond the boundaries of this radius in the prices of its goods, or justify why the price for it goes beyond them.
Service factor - service is involved in the pre-sales, sales and post-sales stages of the transaction. Maintenance costs should be included in the price. Such expenses include: preparation of quotations, calculations, installation of equipment, delivery of goods, personnel training, provision of a guarantee or the right to pay in installments.
Pricing strategy enterprises are united by a set of long-term agreed provisions that determine the formation of market prices in the interests of ensuring sales. Usually, according to an established strategy, the most important decisions are made that entail long-term consequences for the development of the enterprise. Pricing tactics are a system of specific tactical measures aimed at managing prices for an enterprise’s products and services in the short term.
A pricing strategy is a model of company behavior planned for the long term, the main goal of which is the successful sale of goods or services. This is carried out mainly by choosing the order of prices, as well as through other decisions. Pricing strategies are:
- Traditional.
- Pricing strategies for assortment pricing.
- Pricing strategies for differentiated pricing.
- Competitive pricing strategies.
Pricing tactics are certain actions relating to a short period of time, aimed at regulating the cost of goods or services. These actions (discounts, allowances, promotions and others) include managing consumer behavior and changing prices, but their overall goal is to achieve the planned results.
6 pricing strategies that Western companies successfully use
The editors of the General Director magazine reviewed innovative pricing methods that Western companies either already use or may use in the near future.
Classic Pricing Strategies You Need to Know
High price strategy. This pricing strategy involves achieving excess profits for the enterprise (“cream skimming”), generating income from buyers for whom the new product is of great value and who are willing to pay a high price. This pricing strategy is used when the company is convinced that there is demand for expensive products.
This strategy is typical for the market situation in the following cases:
- when selling new products without analogues protected by patents;
- low elasticity of demand;
- if demand is higher than supply;
- there is a market segment for which demand does not depend on price dynamics;
- limited competition.
Average price strategy (neutral pricing). This pricing strategy is applicable at all phases life cycle, excluding warehouse. It is most typical of most companies that consider making a profit as their long-term policy. According to many businessmen, this is the fairest pricing strategy, because:
- “price war” is excluded;
- pricing strategy does not allow companies to make money at the expense of customers;
- the pricing strategy does not lead to the emergence of new competitors;
- The pricing strategy allows you to receive a fair return on invested funds.
Low price strategy (price breakout strategy). This pricing strategy can be applied at any stage of the life cycle. It is especially effective in conditions of high price elasticity of demand. The use of this pricing strategy is intended for the following cases:
- to penetrate the market, increase the share of its products (displacement policy). expedient this method will be if per unit costs decrease as sales increase. low prices will encourage competitors to develop similar products, since in this situation they provide low profits.
- to prevent bankruptcy.
- to relieve the production capacity of the enterprise.
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Target price strategy. This pricing strategy assumes that the level of sales and the amount of profit, regardless of price changes, should be constant. Therefore, profit acts as a target value. This pricing strategy is mainly used by large corporations.
Preferential pricing strategies. Preferential tariffs are established for consumers who are important to the company, or due to administrative intervention. The goal of this pricing strategy is to stimulate sales to certain customers by undermining weak competitors, meeting government regulations, and freeing up warehouse space.
Price leader strategy. This pricing strategy does not imply setting prices for new products according to the price level of the leading enterprise in the market. We are talking about taking into account the pricing policy of the industry leader or the market. The price of a new product may differ from the tariffs of the leading company, but within certain limits dictated by technical and quality superiority.
Contract pricing strategy. A contract concluded for a certain period fixes the terms of delivery or sale if the future market situation is uncertain, although provided for or not excluded significant changes which may affect the profitability of the enterprise. This is a rather risky pricing strategy, but if the forecasts are confirmed, it allows you to obtain significant profits for the enterprise.
Competitive pricing strategy. A price war is waged with competitors, bringing low prices in the market. Also, the use of this pricing strategy is possible to ensure profit from sales. Company in in this case does not change prices when competitors do so in order to maintain profit margins, even if it loses market share. This option is used when a reduction in prices results in a sharp reduction in the enterprise’s income, and if the company itself is confident in its ability to restore its market position.
Constant price strategy. The company strives to establish and maintain constant prices sufficiently long term. When production costs rise, the company does not revise prices, but makes changes to the product composition or packaging to save money.
Unrounded price strategy. Prices are set at less rounded values. This is a psychological technique, however, it gives buyers the feeling that the company has carried out a thorough analysis of prices, setting them at a minimum level. In addition, they like to receive change.
You will be taught how to choose a pricing strategy taking into account market conditions in the School course. general director.
Differential pricing strategy
1. Periodic discount pricing strategy based on different consumer preferences, with buyers classified into groups.
This type of strategy is successfully implemented when there is a decrease in consumer demand over time, for example, out of season. main feature such a strategy - consumers always know at what time it will be applied.
Example. The company has two options for selling its products, but you need to choose one: if the cost is 85 thousand rubles per position, then you will be able to sell 25 positions; if 65 thousand rubles - only 50. Thus, if the price decreases, then the sales volume increases.
The company's products attract 50 consumers, of which 50% of people want to buy these products only in the first days of each time period. Moreover, they are ready to make a deal even if they purchase one position for 85 thousand rubles. The remaining 50% want to purchase one position at a price no higher than 65 thousand rubles per position, and they do not care at what time.
At what cost should the company sell goods?
At first glance, the conclusion suggests itself that this company will not be able to profitably sell its product, since the cost of the product is higher than half of consumers are willing to spend on it. But there is an excellent way out of this situation - to sell goods using the different nature of consumer demand, that is, implementing a strategy of periodic discounts.
Then, at a cost of 85 thousand rubles per position, there will be absolute satisfaction of consumers who need to buy only in the first days, and the second group of buyers, who want to buy cheaper than 65 thousand rubles, in this case will be left with nothing. The income will be 2.125 thousand rubles (25 * 85,000).
But the most ideal development would be in which the company initially sells half of the goods for 85 thousand rubles per item, and after that it will gradually reduce the cost to 65 thousand rubles.
It turns out that the company sells part of the products to those who absolutely need to buy in the first days of the period, and sells the rest of the goods to those who are not ready to overpay for urgency. Thus, average price from the sale of one item will be 75 thousand rubles.
The above pricing strategy takes place in real life: stylish goods out of season, prices for housing and communal services during peak traffic, tickets for performances taking place during daylight hours, tours out of season, and so on. The same price reduction rules apply when it comes to older models. And vice versa - prices rise if the product runs out, if the product has been modernized, etc. The main feature of this strategy is that consumers always know at what time it will be applied.
2. Random discount pricing strategy(sale at variable prices) is based on search costs, which motivate the random discount.
Example. The company can afford to sell one product item for no less than 60 thousand rubles. On the market, these products cost from 60 thousand rubles to 80 thousand rubles, while people are ready to buy this product for no more than 80 thousand rubles. To purchase products at the lowest price, that is, for 60 thousand rubles, you need to spend 60 minutes of your time. In the case when the consumer does not waste time, but buys from the first one he comes across, then there is a low probability that he will buy for 60 thousand rubles or 80 thousand rubles, and most likely, the price will be between these figures.
Let’s take a value from 0 to 20 thousand rubles as the cost at which the consumer is willing to estimate 60 minutes of his time. Then, suppose that a person who does not spend time searching buys on average one unit of product for 70 thousand rubles, and the one who spends it buys it for 60 thousand rubles, that is, the average savings is 10 thousand rubles. It turns out that the products will be purchased by consumers who value the time spent at less than 10 thousand rubles.
Let's assume that some consumers spend their time searching, while others buy the first thing they come across. In this case, what strategy should a company follow, whose product cost is 60 thousand rubles?
In this situation, the company needs to use a strategy that will maximize the number of consumers who know about the low price, and those who do not know, and therefore buy at the highest.
Thus, it is necessary that the cost decreases according to a random principle: first the price is set at 80 thousand rubles, and then there is a gradual decrease to 60 thousand rubles. That is, for those who do not have information, discounts should be random and rare, in which case they will buy goods at random (usually expensive), since they will never be able to guess the low price a second time.
Those consumers who have information about the price order will wait for the moment when the cost of the product drops to the minimum price, and then they will make a purchase. From the above it follows that the main condition for the pricing strategy of random discounts is not the same search costs. The majority of consumers are informed about the differences in prices, but for some of them who earn well, this does not matter - time is more expensive, but for the rest - the opposite.
3. Discount pricing strategy in the second market– based on characteristic features fixed and variable expenses.
Example. The company sells 110 product items for 22 thousand rubles per piece. Variable expenses equal to 7.7 thousand rubles per item, and fixed costs amount to 3.3 thousand rubles for 220 product items.
Discount pricing strategy in the second market is based on the characteristics of variable and fixed costs of the transaction. The company wants to enter a new market, but retain absolutely all its positions in the old one, while its production capacity makes it possible to increase production by 220 product positions.
What is the minimum price at which the company can sell its products? If we take a new market, then the benefit will be received if the cost of sales is greater than the sum of variable costs, that is, more than 7.7 thousand rubles. It turns out that the old market provides external savings for the new one, since it takes on the constant costs of products.
Thus, the company can afford to sell products in a new market at minimum price. The best price for a new market should be chosen based on the existing supply and demand in it.
This pricing strategy shows itself most effectively in foreign markets, when selling generic products, when interacting with certain social groups and in some other situations. For example, new generic drugs compete with older, more expensive and patented drugs. Here the company must choose: work with old drugs and lose a certain number of customers, or choose new ones, lose a little profit, but significantly increase the number of consumers.
The optimal strategy in this case would be a mixed choice of prices for old and new drugs.
- Correct pricing: how to set a price and earn more
Competitive Pricing Strategies
1. Geographic pricing strategy is among the strategies related to price formation as a result of competition.
Example. Let's consider several markets: A and B. Let there be 20 consumers each, and each is ready to buy one unit of product for 60 thousand rubles. Let’s assume that to purchase products at a nearby market you will have to spend 20 thousand rubles on travel.
A company operating in market A has a task: it can sell one unit of its products for no less than 50 thousand rubles with a total sales volume of 20 units. If the volume is equal to 40 units, then the cost of one unit of production can be reduced to 30 thousand rubles. To deliver products to market B, you need to spend 10 thousand rubles, while the cost of producing the same products in market B is higher.
The company needs to create 40 units of products and sell them on any market for no less than 40 thousand rubles per unit. In order to avoid competition, the organization must make the average cost for one unit of goods in both markets 40 thousand rubles. But, based on the competitive conditions in market B, the company can choose how to determine the cost of products in the markets.
If the cost of competitors in market B is more than 50 thousand rubles per unit, it is advisable for the company to sell a unit of product for 30 thousand rubles in market A and for 50 thousand rubles in market B. As a result of the fact that average cost will be minimal, competitors will not be scary. This strategy is often used abroad and is called “FOB” (from English “freedom on board”).
In the case when the cost per unit of product from competitors is more than 40 thousand rubles, it is advisable for the company to sell products in both markets for 40 thousand rubles per unit of product, and the result will be the same. This cost appears as a result of adding a satisfactory price for the company of 30 thousand rubles (for the production of 40 pieces) and average delivery costs (10 thousand rubles). This pricing strategy is called “single destination price.”
2. Pricing strategy for market penetration is based on taking into account the cost of a company's goods or services in comparison with similar goods or services from other companies. Such a pricing strategy is needed so that the company can strengthen its existing positions in the market, as well as attract new, promising products.
Example. The company reduces the price of its products from time to time. The lowest price is 50 thousand rubles, while 40 units of products are produced. It turns out that any company that can afford the same numbers will easily be able to start trading in this market.
What pricing strategy should the company use?
In order not to leave this market, the company needs to sell its products to consumers at a price of 30 thousand rubles per piece. This situation is real if the organization not only increases its production capacity, but also reduces the cost of manufacturing its goods.
Such a pricing strategy is needed in order to strengthen existing positions in the market, as well as attract new, promising products. It is constantly used in reality, for example, many business owners unite in order to significantly reduce prices and eliminate various kinds of speculators and unscrupulous sellers from their market.
Another example of applying the above strategy is limit price formation. In this case, companies set a price for their goods/services that barely exceeds production costs. Such steps prevent young firms from entering their market and competing.
3. Price signaling strategy is based on the company’s application of a pricing mechanism in accordance with the requirements of competition, based on consumer trust.
This type of strategy usually takes place in the case of interaction with newly emerging consumers or those who do not have real information about the price of products, but understand the importance of product quality.
Example. Companies manufacture products of two different options quality, while the lowest cost of low-quality products is 20 thousand rubles per piece, and high-quality products are 40 thousand rubles. In order not to lose the trust of customers, one company manufactures products only good quality and can afford to sell it from 20 thousand rubles to 40 thousand rubles per piece.
Based on this, consumers will quickly understand (learn from a conversation or look at prices) what the minimum cost for this product is, but to understand the degree of quality, they need to spend 60 minutes on it.
Suppose that consumers are classified in terms of the value of personal time in the same way as in the example regarding the random discount strategy.
What pricing strategy should the company use, and what spending strategy will consumers choose?
In this case, there are three possible pricing paths that companies can take, but in none of them will the organization sell high-quality products for less than 40 thousand rubles per piece:
1. Engage in the sale of low-quality products at a price of 40 thousand rubles per piece, based on the fact that many consumers cannot assess the degree of quality.
2. Engage in the sale of low-quality products at a price of 20 thousand rubles per piece.
3. Engage in the sale of high quality products at a price of 40 thousand rubles per piece.
In turn, consumers also have the opportunity to take three different paths when choosing a product purchasing strategy. People who do not value their own time too much will conduct a thorough underwriting of this market for quality and ultimately purchase 1 unit of high-quality products at a price of 40 thousand rubles.
Consumers who value their time greatly and are not willing to spend it studying this market will play roulette, that is, they can simply purchase products at the minimum price or purchase products at the maximum cost, expecting that it will be of high quality.
4. Pricing strategy according to the absorption curve includes mainly the benefits of the company's experience and production costs, which are lower than those of competitors.
When this strategy is implemented, consumers who bought the product in the initial time period have a price advantage over those buyers who did so later. This is due to the fact that at the initial stage, buyers purchase products at a cost significantly less than what they were originally set on.
Example. There is a market in which there is healthy competition between companies called X, Y, Z and F, while these companies produce the same goods, in the same quantity (200 pieces each) and in the same time. The only difference is that company X has more experience than the others, which means it spends less on the production of one product than others, namely 2 thousand rubles. Today, in the described market, the price for one product is set at 4 thousand rubles. At the same time, buyers are very sensitive to prices and react extremely slowly to any innovations.
What pricing strategy should Company X adopt?
Remember that company X has higher profits than companies Y, Z and F, so good option for this company, there would be an option in which the cost of the product would be extremely aggressive (up to 2 thousand rubles per piece). With such a development of events, the bankruptcy of all other companies would follow, which means that company X would no longer have competitors. Then this company will take over all the clients of the three companies that left the market, which means it will significantly increase production and sales volumes.
In this case, the cost of producing one unit of product will become even lower, and, due to the decrease in cost, there will be more consumers and they will make more purchases. All this will bring company X a huge amount of money, since only it has advantages; there is no point in other companies starting to play in the market with prices.
Successful application of such a strategy is only possible when the company has serious experience and consumer dependence on the order of cost of the product/service. As a rule, the above aspects take place at the initial stage of development of the production of products that are not essential items, but which use a long period of time.
In this situation, all sellers will be set up to successfully carry out trading activities for the long term. It is important to understand the difference between market penetration pricing strategies and learning curve pricing strategies. These strategies are similar, but the definition of product costs and costs differs.
Pricing strategies for assortment pricing
1. Pricing strategy “Image”- This is a situation in which consumers strive for product quality, but at the same time consider the cost of interchangeable products.
When this strategy is implemented, the company introduces to the market products similar to those already offered, but under a different name and at a higher cost. This step seems to say that this product has better quality. This pricing strategy occupies a middle position between above-par value and signaling, taking from the former an approach to customer needs and from the latter an attitude to costs.
As a result, the company, with the help of a new, more expensive product, communicates to consumers that high quality, and invests the income received in the production of cheaper similar goods.
2. Pricing strategy “Set”- This is a situation where there is different demand for identical products. This pricing strategy allows you to sell more products, and this happens due to the fact that the cost of this particular product is less than all other products in this segment.
Example. A company sells two products: product A and product B in a market in which they have their own customers. Let's call them consumer 1 and consumer 2.
The highest cost that consumers are willing to pay is:
What pricing strategy will be optimal, provided that aggressive play with prices is prohibited, and one of the consumer groups cannot sell both goods at inflated prices?
The most profitable option would be to sell product A for 16 thousand rubles, and product B for 14 thousand rubles, that is, it will be 30 thousand rubles, and the total income will be equal to 60 thousand rubles. It turns out that consumer 2 will buy both goods for no more than 37 thousand rubles, and consumer 1 – no more than 30 thousand rubles.
As a result, both groups of consumers will take the set for 30 thousand rubles, which means the company will receive maximum profit.
3. Pricing strategy “Above par” is implemented if there is an opportunity to earn even more by increasing the volume of products produced, and at the same time the demand in the market is uneven.
Example. The company can sell its products on average no cheaper than 30 thousand rubles per piece with a volume of 40 units, and no less than 60 thousand rubles with a volume of 20 units. To introduce improved products to the market, you need to spend another 10 thousand rubles, since 40 consumers are interested in such products. At the same time, 20 of them are ready to spend up to 60 thousand rubles on one unit, quality is very important to them, and the remaining 20 people can afford to buy one unit of product for a maximum of 25 thousand rubles, and they will be completely satisfied basic equipment goods.
At what cost and what products (regular or improved) should the company sell?
The best way out of the situation would be to use prices that are higher than nominal, but based on the heterogeneity of consumer desires. That is, the company needs to create 40 units of products, half of which are basic model, and the other part is improved. It is recommended to sell the first at a price of 25 thousand rubles per piece, and the second - no cheaper than 42 thousand rubles.
In this case, this strategy will bring the company good profit and protects you from competitors. The company will make a loss from the sale of cheap products, but will compensate for this and remain in the black by selling an expensive product model.
4. “Kit” pricing strategy is that consumers evaluate the same products completely differently.
Using this type strategy, when choosing the minimum price for which a product can be sold, a company should take into account future declines in profits and the likelihood that consumers will not buy additional products.
Example. The company manufactures products for long-term use (36 months) and sells them at a minimum cost of 100 thousand rubles per piece. To use this product for all 3 years, you still need to buy 500 rubles worth of products monthly. But the majority of consumers want to buy goods no more expensive than 50 thousand rubles, but at the same time they are ready to buy additional products every month for an amount not exceeding 2 thousand rubles.
Let’s imagine that all these consumers will actually buy products worth 2 thousand rubles every month, and the percentage reduction in the company’s future profit is zero.
What pricing strategy should the company then adopt?
With this development of events, the company can sell its main products not for 100 thousand rubles, but for 50 thousand rubles, given that 2 thousand rubles worth of additional products are sold monthly. Then the total additional income for 36 months will be equal to 54 thousand rubles (36 * 1.5), and this will compensate for the losses when selling the main products for 50 thousand rubles, and not for 100 thousand rubles.
But we should not forget that there is a possibility that some consumers will not purchase additional products every month, and another option is also possible when, on the contrary, more additional products will be purchased than the company initially planned. And there may also be a development in which the main products will be used not for 3 years, but more, and accordingly, additional products will be purchased monthly. Therefore, this pricing strategy is also called “bait”.
3 prohibited pricing strategies
- Monopolistic pricing. It involves establishing and maintaining a monopolistically high cost, usually with the aim of obtaining excess profits.
- Dumping prices are significantly reduced prices in order to gain advantages over competitors.
- Pricing strategies based on collusion between entities that limit competition.
A practitioner tells
Dmitry Dmitriev, director of marketing communications Leroy Merlin Vostok company
Our entire network operates according to the “low prices every day” strategy. We analyzed the success of this model in retail different countries and came to the conclusion that it needs to be implemented in domestic practice.
On initial stages It was not easy to work with suppliers, explaining the principles of this concept. But now, due to the effectiveness of the chosen approach, we can implement our mission faster than others and quite successfully on the principle of “making home repairs and improvement accessible to everyone.”
Every month, in all the cities in which our stores are represented, we conduct checks: is the name of our company associated with consumers with an image of low prices? We ask customers: “Where, in your opinion, are the lowest prices for goods for home repair and improvement?” , we suggest choosing a brand from an extensive list of market participants.
Factors influencing the choice of pricing strategy
Businesses have to face many constraints when developing a pricing strategy. Their relative elasticity may change over time. There are three large groups of factors influencing the pricing strategy of an enterprise:
- Factors that are related to the company itself, including tasks, goals, internal performance indicators, nature of the business, etc.
- Environmental factors.
- Other elements of marketing
