Pricing strategy

From CEOpedia | Management online
Jump to: navigation, search

It is a way for thinking and acting that highlight key strategic objectives of prices on the market. Pricing strategies of the company determine the answers to two questions: how the company wants to position its brand-name product on the market and which objective ensure optimization of value for shareholders. Product positioning in the market involves selection of consumers, to establish a market area that is the target to which it is addressed, as well as the differential advantages of product brand.

This is a collection of decisions on issues related to prices on a given market, organized in a logical whole, within which the management takes into account the decision-making stages in accordance with the marketing rules of price formation, calculation of the base price and its adaptation.

Types of pricing strategies

  1. Cream collection Strategy - involves the use of inflated prices in the short term. This strategy is usually used in relation to products that are new or most wanted versions of products existing on the market.
  2. Prestigious prices strategy - involves setting high prices for products which are considered prestigious (luxury) and of high quality. The high price in itself constitutes an important incentive to purchase the product.
  3. Penetration strategy - a strategy of low prices designed to infiltrate markets and achieve in them a large share. This strategy works only when the price elasticity of demand for the product is high enough, to cause large increase in the sales volume after price drop.
  4. Expansive prices strategy - price formation as a greater form of penetration strategy. It this strategy price are set at a very low level in order to establish a massive market share, sometimes at the expense of other competitors. This strategy concerns products with very high price elasticity of demand.
  5. Preventive prices strategy - this strategy involves the use of low prices, in order to prevent potential competitors from entering the market..
  6. Pricing strategy to eliminate competitors - the prices are set at a very low level, to destroy the competition. Prices are usually below the level of the costs of production.

In addition, there are three types of framework strategy:

  1. High-price strategy - is to designate the relative price level above average prices on a given product market.
  2. Neutral prices strategy - consists in determining the relative level of prices of the product on the similar level as the average prices on a given product.
  3. Low-price strategy - is to designate the relative level of prices below the average level on a given market.

When managers choose a price strategy, they need to keep in mind that one company can use in parallel multiple strategies for different products and market segments. This is due to the fact that the company supports various product markets or works in different markets or market segments. Then arises the need to adapt company strategy to the specifics of market segments.

See also:

References