Marketing: Pricing strategy - Essay Example

The following are some of the factors that need to be looked into while setting up the price. Demand: First and foremost variable that a company considers is the demand for the product. Usually the price is inversely proportional to the demand. If price is lower then the demand will be high and if the price is high then the demand will be less. The demand is in turn influenced by factors such as pricing of substitute products and their availability, consumer spending capability, product durability and other features of the product.

Thus companies need to determine the price based on the demand and other factors that influence the demand. Cost: The next factor that a company should evaluate is the cost of production and marketing of the product. The cost will be basis of the company to set the price. If the company sets the price much higher than the cost then the sales may decline and if the company sets the price very low, then its revenues and it may even have to bear a loss. Thus the company needs to set the prices so that the costs are recovered and provide good margins Product life cycle: the company should also consider the stage of the product in the product life cycle.

If the product is at the introductory stage then the company can set higher prices, which can be reduced as the product moves into maturity and decline stage.Competition: competition is another major factor that a firm has to look into. The company can set higher prices than the market rates, if the competition is negligible. If the firm is operating in high competitive market then the company has to determine whether the price should be lower than the market level or at the market level. For the consumer electronics market is highly competitive it is advisable for the company to set prices lower than the market level.

Distribution strategy: the distribution strategy for the company should also be considered while setting the price. In order to capture a large share of the market, the company has to provide large trade margins for the channel partners and may encourage them to push the product into the market. As the television model is high end product, the consumer may prefer to purchase the product as an outlet that is convenient and has the right ambience. Thus the company may have to pay even more to the traders to sell the products through such outlets.

Consumer perception: consumer perception towards the price also influences the pricing decision. Consumer views the price as reflection on the quality of the product. They consider the product to be of high quality if a higher price is fixed and of low quality if lower price is fixed. Such pricing strategy is also known as prestige pricing strategy. A new company to launch a high end product, the company has to fix a higher price to make the customer perceive that the product is of high quality.

Promotional pricing is used by companies when they launch a new product or to revive the sagging sales of the company. Microsoft made this offer to Windows98 and windows 98 second edition users so as to encourage them to shift to their new offering Windows Me. By this the company wanted to improve the short term sales of its new product. There are various promotional pricing techniques that are widely used in the industry.Special event pricing: Companies offer products at special