One of the four elements of the marketing mix is price. It is a very important factor determining the demand and supply for a given good or service. In addition, it is an extremely important tool used in the strategy of the innovator, introducing a new product to the market. Pricing strategies that is shaping and changing prices.
Among the various classifications of this strategy is the division into:
– high price strategy,
– low price strategy,
– neutral price strategy.
High prices strategy
The strategy of high prices consists in determining a relatively high price level (above average prices on a given market for a new, innovative product). This strategy has pros and cons. These include, for example, a quick return on investment outlays, achieving the desired level of unit profit. The higher the price of the product, the higher the functional and usability rating of the product by buyers. The expensive product is perceived as luxurious. An additional advantage is the fact that the producer can reduce the price at any time. The disadvantages of using this strategy include the fact that the strategy overlooks a large proportion of societies that are very price-sensitive and that such a product will not be on their shopping list. The high price will discourage them from trying out new products. In addition, high product / service prices will attract competition to this sector.
Low prices strategy
The innovator can therefore use an alternative strategy – low prices (market penetration). It involves setting prices below average prices on a given product or service market. This strategy assumes quick taking on of the market and achieving large sales volumes but with low profit per unit of product. The penetration strategy also assumes intensive use of three elements of marketing – mix. All this to quickly attract a large number of buyers. You can’t do without the pros and cons of such an activity.
The low price includes a wide range of potential customers, which in the long run brings big profits for the company. Thanks to low prices, the innovator can increase sales by better using production capacity. It is necessary to seek and focus on continuous cost reduction. The low price of the product is not an attractive market for competitors. The disadvantage may be the fact that the low price of the good / service will be associated with low quality. The disadvantage is also that the payback time will be longer.
Neutral prices strategy
This strategy has the following benefits: the ability to serve segments of the middle class social market (it is worth adding that this is the most numerous class). In addition, with such a strategy, the company’s decision making scheme will be simplified and flexibility and the ability to change prices will be limited. In addition, the average price will not distinguish the product or service from other offers on the market.
A company or an innovator who creates a price strategy must always take many factors into account. For example, they can be: the speed of market expansion, the number of potential competitors, product features, its life cycle, the importance of cost structure for the enterprise, etc.