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In order to develop pricing strategies organization need to be clear about their pricing objectives. These are also known as market oriented pricing. These might include the following.

Penetration pricing- see product life-cycle.

Market skimming pricing- see product life cycle.

Customer value- this involves charging the price that consumers are prepared to pay.

Products which have prestige name attached to them may be able to commend a higher price because of the status of these names. Products for one-off events such as music festivals or sports final may be given a high price because they are unique.

Loss leaders or promotional pricing- are products priced at very low levels in order to attract customers. The price of a loss leader is set lower than the overage total cost of producing the product. The company selling the product makes a loss on each product sold. Businesses use this technique because they expect the losses made on the loss leader to be more than compensated for by extra profits on other product or they give a tough time to their competitors. The competitors are unable to beer loss for a long period and they quit. The remaining company is then able to sell the product at desired prices.

Psychological pricing- many businesses seek to take account of the psychological effects of their prices upon consumers. A common example is the use of prices just a little lower than a round figure, such as $ 199.99 rather than $ 200. This technique is used to attract consumers who value their money.

Discriminatory pricing- occurs when a company sells a product or services at two or more prices that does not reflect a proportional difference in cost. For example, different version of products or customer groups is priced differently but not proportionately to their respective costs.

Price discounts and allowances- most companies modify their basic price to reward customers for such acts as early payments, volume purchases and off-season buying.

Optional facture pricing- many companies offer optional products or features along with their main product. The automobile buyer can order electric window controls, defoggers and light dimmers.

Captive product pricing- some products require the use of ancillary or captive products.

Example of captive products is blades (razors are useless without blades) and camera film (cameras are useless without film). Manufacture of main product (razors and cameras) often price them low and set high markups on the supplies. Thus Kodak prices its cameras low because it makes its money on selling film.

Two part pricing- service firms often engage in tow-part pricing. That is they charge a fixed fee plus a variable usage fee. Thus telephone users pay minimum monthly fee plus charges for calls beyond a certain limit. An amusement parks charge an admission fee plus fees for rides over a certain minimum.

Byproduct pricing- it the byproducts have value to a customer group, and then they should be priced on their value. Any income earned on the byproducts will make it easier for the company to charge a low price on its main product if competition forces it to do so.

Product bundle pricing- sellers often bundle their products at a set price. Thus an auto manufacturer might offer an option package at less than the cost of buying all the options separately. Since customers may not have planned to buy all of the components, the saving on the price bundle must be substantial enough to include them to buy the bundle.

Close bid pricing- this method of pricing occurs when firm have to ‘tender’ a bid for work, which they are carrying out. This is common practice for firms dealing with the government or local authorities. Firms clearly need to pay very close attention to the price at which they expect their competitors to bid. Firms comparatively lowest price are likely to be accepted.

Premium pricing- when a product is considered to be particularly high values, due to its exceptional level of quality or the brand image it portrays, then a business may decide to charge a premium for the privilege of purchasing the product. The Ritze hotel in London charges over $ 5 for a cup of tea. It is not only that the tea is high quality but also certain customers are willing to pay to the status and prestige.

Factors influencing Pricing Decisions

1. Business and marketing objectives e.g. objective is profit maximization so prices would be increased new lineproduct as status symbol so only high price.

2. The other marketing mix element e.g. new technological innovation – high price products of common nature – low price or in line with competitor channels of distribution involved.

3. Cost of production - direct technical factor, not psychological 4. Demand in the market

5. Supply in the market 6. Competition

7. Market conditions – Monopoly, Perfect competition, Oligopoly etc.

8. Stage of product lifecycle

9. Resources or capital available - economies of scale 10. Scale of operation

11. Type of the market (consumers) - niche market or mass market, elite class or middle class

e. condition i.e. boom or recession

Q. Evaluate two pricing strategies when launching a new product.

Pricing strategies are the pricing policies or the methods of pricing adopted by a business.

When launching a new product, business usually choose one of these two strategies:

penetration pricing or price skimming.

Penetration pricing is charging very low prices for the new product in order to gain a higher market share in short time. Businesses using this strategy hope that consumers would be more willing to buy their new products as they are cheaper than that of the market. This cost of strategy is used by businesses aiming at the mass market where they want the maximum number of customers to be introduced to their product. Thus a low price would attract customers to atleast try the product once. Also businesses using this strategy are usually in a market with several competitors such food (cornflakes) and general clothing. Then penetration pricing may be charged in accordance with their marketing objectives of gaining a large market share. Once customer loyalty for a product develops, businesses may then increase their prices slowly to come at par with the rest of the competitors. This would ensure that the business is able to cover up any losses it

incurred when charging the low prices. However, penetration pricing requires heavy amounts of promotion and advertising in order to gain a large volume of sales that would help cover up the costs.

Despite all the features of penetration pricing, there is the drawback that the costs are not over because the product becomes outdated before business has the chance of increasing prices. Therefore certain products such as fashion gadgets or fads the penetration pricing may prove unsuccessful. This is because facts could be outdated before the business has a chance of increasing prices. In such cases it may be better idea to charge higher prices to cover up the costs.

The other pricing strategy i.e. price skimming is where the business decides to charge a very high price for its new product as compared to other competitors or in case of no competitors then its just high. This strategy is especially successful for brand new, innovative products especially electronics such as mobile phones with movie cameras and the feature of sending them to others.

This is a very unique selling point and so firms such as these are confident of success.

Therefore, they set a very high price in order to maximize revenue before any other competitors loan come into the market. Such strategy is especially true for technological breakthroughs such as optical fibers. Price skimming may also be very successful if a niche market has been targeted e.g. designer clothes for the elite class. This ensures that a strong brand image for a unique, high quality product is built up in the consumers mend.

It could also be that skimming pricing is used in order to target a small segment in the requiring so that the higher research and investment costs are covered up before selling to other customers at a lower price. This is especially line for pharmaceutical companies that only sell the medicines at very high prices in the beginning. This may be important to generate funds for further research too. Also at lines the pharmaceutical industries may (e.g.) get patents for their new product. This is an exclusive right to sell as a monopoly for a few years before the other competitors are allowed to entire the market for that product. So in this case also price skimming is used throughout the period except the last year when the business lowers its price to maintain its customers even after competitors when the market. Both pricing strategies for new products in the right circumstances will be very beneficial.

However, before deciding on these strategies extensive market research should be undertaken. This would allow a business to see what price the consumers are willing to pay for the product. In case of price skimming it ensures that the high price charged is not beyond the purchasing power of the consumer. Otherwise, despite being a unique, advanced technological and innovative product the price strategy would fail. At the other extreme, a low priced product because of penetration pricing may be taken by consumers to be of low quality. This market research is essential to know the perceived value of ht product in the consumers’ sight, otherwise, low price may prove to be an image damaging strategy.

3 Promotion

Promotion is used as part of the marketing mix in on attempt to persuade the customer to purchase the products or services of the business. The principal objective of promotion is increasing the desires of the customer to buy the product or services on offer. In addition, promotion is used to inform the customer of the product and explain its benefits and uses.

It is important for promotion to help the customer to become aware of the product and to understand its selling features and distinctiveness. Using DAGMAR (Define Advertising Goads Measuring Advertising Results), promotion has an important role to fulfill.

Promotion can then be used to sell the product as service by explaining exactly what it does and creating an image for the product that makes it important for all advertisements to satisfy AIDA test i.e.

Attention- it should gain attention of customer.

Interest- it should maintain interest of customer throughout.

Desire- it should able to create a level of desire for the product

Action- in response of successful ad customer will actually purchase the product.

By identifying target market and buyer motives, marketing managers make the five major decisions in developing an advertising program, known as 5Ms.

Mission- what are advertising objectives?

Money- how much can be spent.

Message- what message should be sent?

Media- what media should be used?

Measurement- how should the result be evaluated?

Above the line promotion

Above the line promotion is through independent media such as television or newspapers.

These allow a business to reach a wide audience easily. Most advertising is carried out

‘above the line’. There is not attempt to attract individual customer and promotions is seen by most of the readers, even though some will not be interested.

Below the line advertising or merchandising or promotion out of pipe line

It takes place by methods over which firms have some degree of control. These include direct mail advertising, exhibition and trade fairs, sales promotions, merchandising, packaging, personal selling, and public relation.

Below the line promotion allows a business to aim its marketing at consumers it knows and are interested in the product. It allows to prick the customer exactly which a business wish to attract.

On the other hand this type of advertising is expensive and their outcome is difficult to predict. They are often one off events, which have an impact for a limited period.

Customers dislike some methods like direct mail and personal selling.