Market based price
|Market based price|
Market based price is used to describe price set on the basis of other competitive prices of similar products or services. Market based price is used as a benchmark during preparation of marketing strategy, marketing mix activities and R&D processes during new product development. Market based prices are also reference used to set optimal production and distribution costs of new product and to evaluate break-even point on new products sales volume.
Price is one of the basic elements of the four P's of marketing, which include price, promotion, place and product. When determining the national price, the choice should not be made in a random way. Research should be conducted in many areas, among others on the customer market, competition or product life cycle.
Strategic determination of the market price requires stronger relations between marketing and other sectors in the company. In order to improve results, prices should be defined on the basis of internal capabilities and systematic monitoring of customer needs.
The company should reflect changes in prices over time and differences or changes in the value of the product.
The company should anticipate threats such as - competition threats, technological changes and try to neutralize them.
Source of the profit
The company should evaluate the success in price management, comparing the profits with the revenues obtained by the competition.
Price decisions made by management are one of the most important decisions, which affects profitability and competitiveness on the market. They need to understand how customers perceive prices and how they can develop value. The goal is to make the most favorable price that will generate more value for customers without increasing the sales volume of the company. The pricing strategy is based on the market and objective assumptions. The company assesses competitors' products from the same industry or similar. It takes into account the difference between products. If the product has more features, the company may decide on a higher price.
Product price and demand
With higher demand, the company can offer a higher price for the product. When demand drops, it can offer discounts to maintain customers' interest. The demand for the product is also related to the product's life cycle. The product has a specific life cycle, so market prices at the beginning will be higher than at the end of the product life cycle.
When determining the market price, it is important to analyze the sensitivity of potential customers of the product. If they are sensitive to the price, it is worth pricing the product below the price of the competition, this may be beneficial for the company. When consumers have less sensitivity to price, the benefits of the product can be demonstrated. They have less sensitivity when the product or service is luxurious or high quality.
- De Toni D., Milan G. S., Saciloto E. B., Larentis F. (2017).Pricing strategies and levels and their impact on corporate profitability. Elsevier Editora Ltda, Filipe Quevendo Silva editor, São Paulo
- Leigh A. (2018).What Is a Market-Based Pricing Strategy?. Article from Chron, Updated June 29, 2018
- Netseva-Porcheva T.(2011). Value Based Pricing- A Success Factor in the Competitive Struggle. University of National and World Economy, Sofia, Bulgaria
- Sensfuß, F., Ragwitz, M., & Genoese, M. (2008). The merit-order effect: A detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany. Energy policy, 36(8), 3086-3094.
- Wuollet Joonas (2013).Pricing Strategy and Revenue Models: A Multiple Case Study from the IT Service Sector in Finland. Aalto University School of Business, Finland
Author: Anna Korzeń