Pricing strategy is the company’s policy in setting the selling price of their products. Some companies may set prices more with the market in mind, while others consider production costs more.
Pricing is a key factor in securing profits. Price is the only component of the marketing mix that determines revenue for the company. Meanwhile, the other three components (product, distribution, and promotion) generate costs. The right price ultimately results in optimal demand.
Functions of Pricing Strategy
As an important process, price is something that must be considered with elements of marketing strategy. This is because the function itself has a very vital value for the continuity of a production or service company.
The pricing strategy has several important functions, as a support for all transaction activities while still taking into account the standards of the consumer’s ability to conduct transactions. Setting a product price is also a place for producers to determine the target number of transactions carried out by consumers.
Then, the determination of the price of a particular product is also a reference for the company in the production process so that it can be determined the amount of goods to be produced by a company. With a pricing strategy, a consumer can of course also see the factors that influence the value of the price.
How do I set a price?
In a pricing strategy, you must know the goals and targets. A company must try hard in determining the selling price. Because, in setting the price must be appropriate and appropriate. Here’s how to set a price.
1. Skim The Cream
This method of setting prices is recommended if there are no competitors in the application, or there are no similar products or services. This method is used if the situation is loose, or almost without competitors. The step is to set the highest price, so that the profit obtained will be maximum.
This step is to set the lowest price, so that the market segment will switch to the lowest market price. This method is used if the market condition is in tight competition mode, or has reached a saturation point.
What needs to be considered in this strategy is not to set the price at a very low price range, because the impact and consequences can be fatal, if the price is set too low, the worst thing that can happen is the bankruptcy of a producer or related company. So the determination must be in accordance with the costs incurred, in order to still get a profit for production again.
Types of pricing strategies
1. Competition-based pricing
This is the practice of setting prices based on the prices that competitors charge for similar products. In other words, the company uses the price of a competitor’s product as a benchmark to determine the selling price. The selling price may be slightly below, equal to or above the competitor’s price.
If you set the price below, it results in a lower profit per unit. However, it will result in higher sales, allowing the company to achieve economies of scale. If setting a price above the benchmark, the company must think about the justification.
2. Basing-point pricing
Under the basing-point pricing, companies add shipping costs to customers based on their location from a specific reference point. The further away they are, the higher the shipping costs and the more expensive the product will be.
3. Mark Up
This method determines the selling price of a unit based on the cost price at the beginning of the purchase which is then calculated with a certain amount or here referred to as mark-up. With the mark up method, the related company or producer will always see the initial price of a product, so the next step in setting the price is to increase it by a few percent of the initial price. The pricing has also been based on other additional costs, so that the price situation will remain standard without excessive price increases.
4. Captive pricing
Companies use different prices for core products and product accessories. Usually, the price of the core product is lower than that of the accessory product. Customers may be attracted to the core product because of its low price. The company tries to direct customers to buy product accessories. Some product features may not work properly in the core product, unless the customer purchases accessories for that product.
5. Discriminatory pricing
The company offers different prices to different customer groups for the same product. The main consideration factor is the price of the customer’s reservation, which is the maximum price they are willing to pay.
6. Freight-absorption pricing
Freight-absorption pricing is a specific form of geographic pricing practice. In this case, the seller chooses to absorb some or all of the shipping costs instead of charging it to the customer. Often, the goal is to secure sales or long-term contracts with customers.
7. Loss leader pricing
Loss leader pricing is a more lenient pricing practice than predatory pricing. Firms set prices at a loss rate, but still above average variable costs. In other words, the selling price only covers variable costs and some fixed costs. The main objective of loss leader pricing is to increase short-term sales.
8. Peak-load pricing
Peak-load pricing is charging different prices to customers according to demand conditions. Companies use higher prices during peak periods and normal prices in other periods. For example, airlines charge higher prices during holiday periods than normal seasons.
9. Penetration Pricing Strategy
This strategy is when a company enters the market at a very low price, effectively attracting attention and revenue from competitors at a higher price. However, penetration pricing is not sustainable in the long term, and is usually applied for a short period of time.
10. Target pricing
Under target pricing, the company sets the selling price first and then adjusts the product features. The marketing department sets the ideal price for the product taking into account the conditions of competition and demand. The ideal price includes two components, namely production costs and profit margins. The research and development team then designs a product with appropriate features within a predetermined cost limit.
11. Value-Based Pricing Strategy
value-based pricing strategy is when companies price their products or services based on what customers are willing to pay. Even if it can charge more for a product, the company decides to set its price based on customer interest and data. If used accurately, value-based pricing can improve your customer sentiment and loyalty.
12. High-Low Pricing Strategy
A high-low pricing strategy is when a company initially sells a product at a high price but lowers that price when the product drops in novelty or relevance. Discounts, clearance shares, and year-end sales are examples of implementing high-low pricing.
13. Psychological Pricing Strategy Psychological pricing
is what it’s like to target human psychology to increase your sales.
14. Zone pricing
The company charges the same price for customers in certain zones and sets different prices for customers in other zones. If the zoning is based on the location of the delivery center, then we call it basing-point pricing. In addition to the distance from the delivery location, other factors to consider when setting a zone are :
- Density of population or consumers
- Transportation infrastructure
- Number of competitors in each zone
Pricing strategy is indeed very important, by applying appropriate and appropriate prices, of course it will be easier for a company to compete with competitors or competitors. To set the price, several factors must be considered, so as not to make it difficult for consumers to transact.