Factors Affecting Pricing Strategies
Factors affecting Pricing Strategies
Introduction
Pricing can be defined as the assignment of value or the cumulative amount of value that a customer must exchange in order to receive a particular product or service (Gerth, n.d.). For marketers, pricing can be viewed as a single strategic tool that can translate a potential business entity into reality (Abratt & Pitt, 1985). On the same notion, Avlonitis & Indounas (2005) noted that pricing is the only element of the marketing mix that can bring revenue for the organization with the remaining elements associated with expenditure.
Factors affecting pricing strategies
One of the factors affecting pricing decisions is the pricing objective(s) of the firm. Organizations need to clearly spell out their pricing objectives before settling for a particular pricing method. These pricing decisions, however, are so complex that organizations may pursue more than one objective. Avlonitis & Indounas (2005) classified the pricing objectives into quantitative and qualitative ones. Quantitative objectives are related to sales, profits, costs and market share. Qualitative ones, on the other hand, are related to the relationships with customers, competitors, etc. Thus the pricing objective of the firm has a huge bearing on the final price to be charged for the specialized electronic product. Critics of the quantitative pricing objectives, however, have noted that maximization is difficult to achieve in reality.
As discussed by Kotler & Keller (2011); despite the freedom organizations have over their pricing decisions, except for producers of utility products that may be regulated, marketers need to understand the effect of their price on demand. The consumers’ perception about the product category (normal/prestigious) is vital in explaining the effect on demand. For instance, if the specialized electronic product is perceived as a normal product, the demand tends to decrease with any increase in price. The
Introduction
Pricing can be defined as the assignment of value or the cumulative amount of value that a customer must exchange in order to receive a particular product or service (Gerth, n.d.). For marketers, pricing can be viewed as a single strategic tool that can translate a potential business entity into reality (Abratt & Pitt, 1985). On the same notion, Avlonitis & Indounas (2005) noted that pricing is the only element of the marketing mix that can bring revenue for the organization with the remaining elements associated with expenditure.
Factors affecting pricing strategies
One of the factors affecting pricing decisions is the pricing objective(s) of the firm. Organizations need to clearly spell out their pricing objectives before settling for a particular pricing method. These pricing decisions, however, are so complex that organizations may pursue more than one objective. Avlonitis & Indounas (2005) classified the pricing objectives into quantitative and qualitative ones. Quantitative objectives are related to sales, profits, costs and market share. Qualitative ones, on the other hand, are related to the relationships with customers, competitors, etc. Thus the pricing objective of the firm has a huge bearing on the final price to be charged for the specialized electronic product. Critics of the quantitative pricing objectives, however, have noted that maximization is difficult to achieve in reality.
As discussed by Kotler & Keller (2011); despite the freedom organizations have over their pricing decisions, except for producers of utility products that may be regulated, marketers need to understand the effect of their price on demand. The consumers’ perception about the product category (normal/prestigious) is vital in explaining the effect on demand. For instance, if the specialized electronic product is perceived as a normal product, the demand tends to decrease with any increase in price. The
References: Abratt, R. & Pitt, L. F. (1985), Pricing Practices in Two Industries, Industrial Marketing Management, 14, pp 301 – 306 Avlonitis, G. J. & Indounas, K. A. (2005), Pricing objectives and pricing methods in the services sector, Journal of Services Marketing, 19(1), pp 47 - 57 Gerth, D. (n.d.), Unit 9: Pricing, [Online] Available from: http://ww2.nscc.edu/gerth_d/MKT2220000/Lecture_Notes/unit09.htm/ [Accessed on: April 6, 2013] Kotler, P. & Keller, K. L. (2011), Marketing Management (Global Edition). 14th Ed. Harlow, Essex: Pearson Education Limited