PRICING STRATEGY

Pricing strategy is a component of a firm’s product/market development strategy for that product and/or the business as a whole to achieve a competitive advantage.

A firm’s product/market strategy (inclusive of pricing strategy) must be developed in the context of the firm’s chosen generic strategy to maximize its competitive advantages (cost leadership, product differentiation and niche marketing/focus) and how the firm plans to develop the product over time (product-life cycle development)

1. Cost leadership
• Aim to produce the lowest cost and good quality product in the industry.
• Adopts a cost-conscious approach
• Competences - strong technical advantage and low-cost distribution system.
• A low-cost leader will have the ability to lower prices in time of severe competition and enjoy higher profit margins.
• A low-cost leader can defend itself in price wars, attack competitors on price to gain market share.
• Penetration pricing


2. Product differentiation
• Aim to produce products with special and unique attributes that are valued by customer and who is willing to pay for it.
• Strong marketing and promotion to develop customer/brand loyalty.
• Corporate reputation for quality or technological leadership.
• Adopts premium pricing or market skimming pricing


3. Focus/Niche Marketing
• Concentrates on a strategically identified target market segment (e.g. isolated geographical areas, small or medium-sized customers with unique demands)
• The target market segment will determine the choice between a low-cost base or a differentiation-base.


4. Product Life-cycle Development and Pricing
The price at which a product should be sold is not a one-time, once and for all decision. For example the price will need to be modified over time as the product passes through the various stages of its life-cycle:

• Introduction – high price skimming or penetration pricing
• Growth – gradual price reductions or gradual price increases
• Maturity / saturation – savage price cutting / price wars
• Decline – price decreases.



************