Developing Market Strategies & the Offerings Chapter 12 - Price-Decision and Strategies Lesson 36 - Pricing Strategies
Would it not be interesting to how organizations make strategies for pricing? Let us dig deeply into it and find out…
The only time when price setting is not a problem is when you are a “price-taker” and have to set prices at the going rate, or else sell nothing at all. This normally only occurs under near-perfect market conditions, where products are almost identical. More usually, pricing decisions are among the most difficult that a business has to make. In considering these decisions it is important to distin- guish between pricing strategy and tactics. Strategy is concerned with setting prices for the first time, either for a new product or for an existing product in a new market; tactics are about changing prices. Changes can be either self-initiated (to improve profitability or as a means of promotion) or in response to outside change (i.e. in costs or the prices of a competitor).
Pricing strategy should be an integral part of the market- positioning decision, which in turn depends, to a great extent, on your overall business development strategy and marketing plans.
Companies usually do not set a single price, but rather a pricing structure that reflects variations in geographical demand’ and costs, market-segment requirements, purchase timing, order levels, deliv- ery frequency, guarantees, service contracts, and other factors As a result of discounts, allowances, and promotional support, a company rarely real-izes the same profit from each unit of a product that it sells. Here we will examine sev-eral price-adaptation strategies: geographical pricing, price dis- counts and allowances, promotional pricing, discriminatory pricing, and product-mix pricing.
WHAT ARE DIFFERENT PRICING STRATEGIES ?
1. Geographical pricing (cash. Counter trade. Barter) - Geographical pricing involves the’ company in deciding how to price its products to different. Customers in different locations and countries. For example, should the company charge higher prices to distant customers to cover the higher shipping costs or a lower price to win additional business? Another issue is how to get paid. This issue is critical when buyers lack sufficient hard currency to pay for their purchases. Many buyers want to offer other items in payment, a practice known as counter trade. American compa- nies are often forced _o engage in counter trade if they want the business. Counter trade may account for 15 to 25 percent of world trade and takes several forms: barter, compensa-tion deals, buyback agreements, and offset. „Barter: The direct exchange of goods, with no money and no third party involved „Compensation deal: The seller receives some percentage of the payment in cash and the rest in products. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in coffee. „Buyback arrangement: The seller sells a plant, equipment, or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment. A US. Chemical company built a plant for an Indian company and accepted partial payment in cash and the remainder in chemicals manufactured at the plant. „Offset: The seller receives full payment in cash but agrees to spend a substantial amount of the money in that country within a stated time period. For example, PepsiCo sells its cola syrup to Russia for rubles and agrees to buy Russian vodka at a certain rate for sale in the United States.
2. Price discounts and allowances - The role of discount Offering discounts can be a useful tactic in response to aggressive competition by a competitor. However, discounting can be dangerous un- less carefully controlled and conceived as part...