Pricing is the key to a firm's profitability in the short and long term. Many markets are not price sensitive and price is only one dimension of value so the concept of creating superior value lies at the heart of the offering, and not the price. Low prices rarely provide a basis for sustainable competitive advantage.
A pricing strategy should begin with an assessment of price competitiveness and the formulation of pricing objectives. The first task is to determine which competitors in the market are perceived as offering the best value. Value is a mixture of price and perceived quality. Assessing value therefore, requires research into how customers perceive the quality of alternative offers.
There are various methods of researching such perceptions; * a} Identifying the dimensions of quality
Determine the product or service qualities or attributes that customers look for when choosing suppliers. * b) Weight quality dimensions
Establish which dimensions customers perceive as the most important. * c) Measure competitors dimensions
Customers are then asked to rate competitors offers along the dimensions of identified qualities. * d) Discover price/quality preferences
The Influences on pricing decisions Underlying business objectives -the initial pricing decision will be influenced by the underlying marketing and financial objectives of the business. * Stage of evolution of the market - introduction, young or mature stage. * Target market segments - increasing in number, becoming difficult to define, are continually evolving and are dynamic. * Competitor targets - prices are never set in isolation and firms entering a market have to estimate the likely reactions of competitors in the market. * Measuring value to customer - a differential advantage is obtained when a firm offers customers value they cannot find elsewhere. * Perceived value - economic value to the customer * Product mix pricing - prices are determined for several situations;
Product line pricing - develop a product line rather that single brand Follow-on products - software for computers Blocked products - uneconomical prices to block new entrants Bundled and option pricing - product at stripped down price and sales force encourage the purchase of add-ons at the point of sale.