QUELREN A.

MCGOWAN
BPC52-Pricing Strategy
Assignment 1

What are the importance of the proper implementation of pricing strategies.

The primary function of pricing is to specify how much money you will receive in
exchange for your product or service. In order for your company to succeed, you must charge
enough to cover your costs and earn at least a modest profit. When calculating how much you
will have to charge to cover costs, keep in mind that your business will achieve economies of
scale as it grows. In addition, you may earn more by charging less -- as long as you are charging
enough -- because lower prices often result in higher sales.
Some define Strategic Pricing as value creation. Some define it as being competitively
aware. Others will use it to describe establishing a company’s price levels and bands. There are
therefore a number of definitions and slight differences in opinion but generally strategic
pricing incorporates best practices in pricing and ensures that your pricing strategies, analytics
and pricing processes complement your business strategy.
Strategic pricing sets a product's price based on the product's value to the customer, or
on competitive strategy, rather than on the cost of production. This approach recognises that
people often make purchasing decisions based more on psychology than on logic, and that
what is most valuable to the customer may not be what's most expensive to produce. By
creating strategic pricing policies, analytics, and processes, you can directly capture customer
value and turn that value into shareholder value.

Is pricing plays a vital role in the achievement of companies goals and objectives.Why?
Pricing plays a vital role in the achievement of companies goals and objectives. Price
represents marketers’ assessment of the value customers see in the product or service and are
willing to pay for a product or service. The other elements of the marketing mix (product, place
and promotion ) may seem to be more glamorous than price, and thus get more attention, but
determining the price of a product or service is actually one of the most important
management decisions. While product, place and promotion affect costs, price is the only
element that affects revenues, and thus, a business’s profits. Price can lead to a firm’s survival
or demise.
Adjusting the price has a profound impact on the marketing strategy, and depending on
the price elasticity of the product, it will often affect the demand and sales as well. Both a price
that is too high and one that is too low can limit growth. The wrong price can also negatively
influence sales and cash flow.
Problems occur if the marketer fails to set a price that complements the other elements
of the marketing mix and the business objectives, as pricing contributes to how customers
perceive a product or a service. A high price indicates high quality. The term luxury comes to
mind. If, however, a firm wants to position itself as a low-cost provider, it will charge low prices.
Just as they do with high-end providers, consumers know what to expect when they see low
prices. So basically speaking, pricing is a great factor that affects the companies’ goals and
objectives.

Identify different pricing strategies used by organizations. Explain.

 Demand Pricing
Demand pricing is also called demand-based pricing, or customer-based pricing. This pricing
method uses consumer demand of a product or service as the main element of setting a price
for a product or service. Also known as dynamic pricing. It is affected by consumer demand.
Which is based on the perceived value of a product or service. Includes price skimming, price
point, bundle pricing, penetration pricing, and other pricing strategies. Prices of products or
services can increase due to bad weather, festive periods, or in the case of natural disasters.
The price of a product or service increases as there is a likelihood that the price will also
increase.

 Competitive Pricing
Also called the strategic pricing. Competitive pricing is a method that uses the prices set by
other businesses (i.e. the competition). More or less using competitor’s price to price your own
products. Give or take a little percentage to fit what your product or service is worth.

 Cost-Plus Pricing
This pricing strategy is a cost-based one for setting prices of products and services. When
setting the cost-plus price, you take the cost of the raw materials and the cost of production
and add them to the overhead costs of a product or service. To this total, you add a markup
percentage (this is your profit margin) and this total sum is your cost-plus price. As long as all
the costs and sales have been accurately calculated, you will always run at a profit.

 Penetration Pricing
This pricing strategy uses low prices to enter a new market or to launch a new product or
service. This strategy is used to entice customers to patronise a certain product or service. It
also serves as a deterrent to the competition. To prevent them from entering the market with a
similar product, because they will have to make their prices lower. Once a customer base has
been established, you can subtly move your prices higher, to a moderate price for a longer-
term strategy.

 Price Skimming
Also called the skim-the-cream pricing. This pricing strategy is used by businesses with a strong
competitive advantage. They enter the market with high-priced products and services. This is to
gain the most revenue. To get an immediate return on production costs before other
businesses can come in with similar, cheaper products or services. Later in the product cycle,
the companies will gradually moderate their prices to accommodate customers with more
moderate price tastes.

 Economy Pricing
A very familiar pricing strategy with retailers and wholesalers. Economy pricing is a basic, low-
cost marketing method. It keeps the prices of goods low, targeting sales at a particular segment
of the market that is very price-sensitive.

 Psychological Pricing
This is a common pricing technique used by businesses. A minor difference in prices is a huge
difference for customers. For example, an item whose price is listed as $399.98 may be seen as
much cheaper than a product or service priced at $400.

 Discount Pricing
A pricing strategy that offers products and services at a reduced price. Discount prices can come
in the form of seasonal discounts, loyalty rebates, et cetera.

 Geographic Pricing
This pricing strategy is one where different prices are charged in different geographical
locations or markets for the exact same product or service. For example, instructional materials
sold in Canada will be sold at a cheaper rate in Cameroun due to the disparity in wages, the
economy, et cetera.

 Price Bundling
Also known as product bundling. This is a strategy is used when two or more products or
services a priced together as a package, with a single price. These product bundles come in two
types: pure bundles are products or services that are sold and bought only as a package; and
mixed bundles, which are products or services that can be bought and sold as a package, or as
individual products. Usually, the bundle prices are less when the products or services are
bought separately.