Marketing Mix: Pricing Strategies

Development of pricing strategies is a key marketing function; and a critical part of your business' marketing mix. You can lose business or gain business depending on whether your price strategy fits the market and the product.

Your pricing must take into account where the product is in its product life-cycle (introduction, growth, maturity, decline), as its life-cycle stage will influence the strategy decision.

Pricing must also reflect the market: the supply and demand for the product (marketing mix product focuses you on that aspect). You can have a great product but if it is priced too high it will not sell. If it is priced too low and doesn't contribute profit - then you will be out of business fairly quickly.

Some strategies to consider are loss leader pricing, market penetration, price skimming, psychological pricing, promotional pricing, value pricing, product line pricing, and much more. You need to understand when, where and why to use different strategies.

Your strategy will need to find the balance between covering your fixed and variable costs, competing with other businesses in the market, reflecting where the product is being positioned, where the product is in its life-cycle and charging a price that customers will pay (customers will often have a perceived value in mind).

When you develop and use your strategies make sure that the market will accept your price(s) - just because you think the price is right, doesn't mean your customers or the market will think so too.

It is important to be aware of pricing strategy parameters and the criteria for deciding on which one (or more) of many strategies to use.

Each strategy needs to be assessed individually for your business conditions, your market, your buyer behavior, your competition, your product life cycle, your promotion program and budget and finally for your distribution method.

Your strategies also need to consider discounts (e.g. for early invoice payment, for cash payment instead of credit card or check), rebates (e.g. for large volume purchases), financing costs - if your product can be a financed purchase such as a car, and more.

Ensure that you build your strategies (and you can use more than one strategy by setting pricing for different market segments, different areas, different customers) in-line with your other marketing mix elements and by keeping your product life-cycle in mind.

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