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Pricing Strategies - Essay Example

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Summary
Pricing is a major component of the 4Ps and is an essential element of any marketing strategy. Setting the price too high can lose sales and market appeal. Setting the price too low can erode profits and drive a product out of the market. The ZC gemstone is presented with a unique situation in which the product has not been offered to the buyers before…
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Pricing Strategies

Download file to see previous pages... Competition-based pricing would allow the ZC gemstone to enter the market at a known acceptable price. It would provide the flexibility to offer prices at or slightly below the competitors. This would eliminate the need for market research. It would also gain immediate market share from the competition upon launch of the product.
Competition-based pricing would also tie the price to the overall market. That would benefit the company by taking advantage of increased profits when the market went up and continuing to sell as the overall market dropped. Because the product does offer a unique quality advantage, ZC could be priced slightly higher than the competition. However, Finlay et al. (1996) warns, "[...] consumers may easily isolate products which are overpriced and disregard them in their buying decision making process" (p.73).
When using a competition-based pricing strategy, there needs to be considerations made for cost and survivability. If the price is set below the competition's lowest price, it may be below the cost of manufacturing it. It should be noted that in a competition based pricing strategy, the price will be set by the "least sophisticated or most aggressive competitor" (Docters 2003 p.18). In an attempt to eliminate the competition, it may drive ZC out of business. However, since the seller also manufactures the item, cost reduction and control could return the product to profitability.
Another drawback in this scenario for pricing based on the competition is that the consumer will connect the quality to the price. Since ZC is a higher quality item, we may not want it to be priced at or lower than similar items of less quality. A lower price may give an indication to the market that it is of lower quality. This psychological barrier may be hard to overcome on an infomercial or through advertising.
Since the product launch is on a televised home-shopping network in the United States, it's imperative that the initial offering be received positively. This will allow ZC to continue and go global. If the ZC Company has adequate resources, they may be able to tolerate cutthroat pricing while making a minimal profit with the objective being long-term expansion. With expansion and increased international sales, production costs will drop and profits will again begin to rise.
The other strategy to consider would be perceived-value pricing. This strategy would be the most effective at setting the price for maximum profits. Setting a higher price based on the uniqueness of the product could offer a sizable competitive advantage. By using premium pricing, it would differentiate the product and set it apart from the competition. This would increase demand and move the price upward. According to Docters (2003), "[...] price alone can influence that demand or move the product into a new demand category" (114).
A higher price would also add to the consumer's perception of quality. A study reported by Maxwell (2005) concluded, "[...] consumer price-quality perceptions were strongly related to their estimates of the price level of the product category" (358). Price is often the indicator that the consumer uses to gauge quality. By setting a higher price we are gaining perceived brand quality.
Another advantage of perceived-value ...Download file to see next pagesRead More
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