Pricing is a powerful element of a small business’s marketing strategy. The pricing structure of your products and services, and how it relates to your competitors’ pricing strategies and the expectations of consumers, play an important role in creating an image for your company and establishing a specific customer base. An analysis of pricing strategy reveals that companies have a range of options in their pricing toolkit they can use to augment their marketing initiatives.
Pricing strategy refers to method companies use to price their products or services. Almost all companies, large or small, base the price of their products and services on production, labor and advertising expenses and then add on a certain percentage so they can make a profit. There are several different pricing strategies, such as penetration pricing, price skimming, discount pricing, product life cycle pricing and even competitive pricing.
Different Types of Pricing Strategies
A small company that uses penetration pricing typically sets a low price for its product or service in hopes of building market share, which is the percentage of sales a company has in the market versus total sales. The primary objective of penetration pricing is to garner lots of customers with low prices and then use various marketing strategies to retain them. For example, a small Internet software distributor may set a low price for its products and subsequently email customers with additional software product offers every month. A small company will work hard to serve these customers to build brand loyalty among them.
Another type of pricing strategy is price skimming, in which a company sets its prices high to quickly recover expenditures for product production and advertising. The key objective of a price skimming strategy is to achieve a profit quickly. Companies often use price skimming when they lack
Bibliography: 1. The Strategy and Tactics of Pricing: A Guide to Growing More Profitably by Thomas Nagle 2. Power Pricing: How Managing Price Transforms the Bottom Line by Robert J. Dolan 3. http://sixrevisions.com/project-management/pricing-strategies-research/ 4. http://entrepreneurs.about.com/od/salesmarketing/a/pricingstrategy_2.htm