Imagine that you work for a pricing strategy consulting business. Select a busin
ID: 457228 • Letter: I
Question
Imagine that you work for a pricing strategy consulting business. Select a business that will be your next client. Write a six to eight (6-8) page paper in which you: Create a scenario that would result in your client seeking advice from your consulting business. Create a pricing policy for the selected client and scenario. Analyze the best price setting process used to establish sustainable and profitable prices for the client. Evaluate key pricing considerations and strategies relative to the product life cycle of your client’s three (3) top sellers. Examine the challenges of effectively implementing a new or updated pricing strategy into the client that you selected. Differentiate between incremental and avoidable costs for your client and analyze contribution margins. Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.
Explanation / Answer
Introduction:
Pricing plays a major role in marketing strategies to attract target customers and maximisation of sales. A business pricing decision can be designed based on various parameters such as cost based, competition based, demand based , strategy based, product life cycle based pricing strategies .
The choice of pricing is an essential marketing decision includes :
1) cost based:
2) demand based pricing : when product is gradually introduced into the market it tries to achieve desired demand from the customer to achieve profit maximisation. It includes :
The demand based pricing and strategy based pricing are quite related. The seller knows rather well that the demand for its product is a decreasing function of the price its sets for product. Thus if seller wishes to sell more he must reduce the price of his product, and if he wants a good price for his product, he could sell only a limited quantity of his good. Demand oriented pricing rules imply establishment of prices in accordance with consumer preference and perceptions and the intensity of demand.
Two general types demand oriented pricing rules can be identified.
Perceived value pricing and
Differential pricing
Perceived value pricing considers the buyers perception of the value of the product ad the basis of pricing. Here the pricing rule is that the firm must develop procedures for measuring the relative value of the product as perceived by consumers.
Differential pricing is nothing but price discrimination. In involves selling a product or service for different prices in different market segments. Price differentiation depends on geographical location of the consumers, type of consumer, purchasing quantity, season, time of the service etc.
3) Strategy based pricing (new product pricing)
A firm which products a new product, if it is also new to industry, can earn very good profits it if handles marketing carefully, because of the uniqueness of the product. The price fixed for the new product must keep the competitors away. Earn good profits for the firm over the life of the product and must help to get the product accepted. The company can select either skimming pricing or penetration pricing.
While there are some firms, which follow the strategy of price penetration, there are some others who opt for price skimming. Under the former, firms sell their new product at a low price in the beginning in order to catch the attention of consumers, once the product image and credibility is established, the seller slowly starts jacking up the price to reap good profits in future. Under this strategy, a firm might well sell its product below the cost of production and thus runs into losses to start with but eventually it recovers all its losses and even makes good overall profits. The Rin washing soap perhaps falls into this category. This soap was sold at a rather low price in the beginning and the firm even distributed free samples. Today, it is quite an expensive brand and yet it is selling very well. Under the price skimming strategy, the new product is priced high in the beginning, and its price is reduced gradually as it faces a dearth of buyers such a strategy may be beneficial for products, which are fancy, but of poor quality and / or of insignificant use over a period of time.
A prudent producer follows a good mix of the various pricing methods rather than adapting any once of them. This is because no method is perfect and every method has certain good features further a firm might adopt one method at one time and another method at some other accession.
4) strategy based pricing: it's based on specific marketing strategy to attract customers.it includes:
Market skimming : it's a process of initially adopting high price and gradually reduced to lower price.The objective is to attract profits from customers with luxury appeal.
Market penetrating: it's based on adopting low pricing and gradually increasing the price with an objective to create awareness of the product.
5) Product life cycle based : this pricing is based on stages of product life cycle since it's introduction into the !market suchas introduction ,growth , maturity and decline stage.
Introduction Stage generally includes cost based pricing strategy
Growth stage requires demand based pricing strategies
Maturity stage includes strategy basedpricing strategies
Decline stage includes competition based pricing strategies
Challenges of effective pricing :
Incremental cost vs avoidable pricing:
Incremental cost is the shift in the total cost estimation of business because of any specific decision where as avoidable cost can be postponed for future and don't involve immediate cash flows!
Conclusion :
Thus pricing plays a major role in business decision to promote the product towards the customers and maximisation of sales.