What is Pricing Strategies? Definition of Pricing Strategies, Pricing Strategies Meaning

When a competitive price meaning tries to make a profit in the market, it gives them an incentive to go ahead in the market. In this blog, we will understand the concept of a competitive market, its types, characteristics and examples. Any manufacturer of a high-end exclusive brand, such as a luxury watch, will limit the number of distribution outlets as a tactical strategy. Preserving its rarity as a brand will enable more control over all its pricing and distribution channels. To have a crystal clear idea of all hidden costs, one should include the overhead costs of all offline and online participants of the distribution process and strike a balance along the distribution chain.

With 150+ payment modes and plenty of useful payment solutions, PayU can help you provide the best checkout experience. It is a practice where the price of a product is calculated by a firm on the basis of its direct costs per unit of output plus a markup to cover overhead costs and profits. In order to increase customer demand, a company uses this strategy to set its pricing very cheap . In deciding to market a product, a firm may try to decide what prices are realistic, considering current demand and competition in the market.

Some of the ways of pricing a product are premium and penetration pricing, price skimming, economy and psychological pricing, product-bundle pricing, etc. However, the situation is further complicated when it comes to pricing for international and global markets. Decisions with regards to a product, price, and distribution for international markets are unique to each country. The competitive market helps the business to evaluate production costs, pricing structure, product quantity and product quality. It works in the way that neither one consumer or one producer can rule the market. Firms/Organizations need to analyze the technological environment of foreign markets.

Apply psychological tactics to pricing

It seems that the nuances of perfect competition build from this, but to explain it, there is an example or two to do so. Another differential Pricing Strategy is variations in the pricing structure. For example, if we book an air ticket 2 months before, the price will be less. If we book the ticket as we thought it would be before, the price may increase slightly. The behaviour of an integrated market will be different from that of a market where there is no or less integration either among the firms or of their activities. Market structure is the formal organization of the functional activity of a marketing institution.

The development of an efficient marketing system is important in ensuring that scarce and essential commodities reach different classes of consumers. Marketing is not only an economic link between the producers and the consumers but it also helps to maintain a balance between demand and supply. The objectives of price stability, rapid economic growth and equitable distribution of goods and services cannot be achieved without the support of an efficient marketing system. The concentration of market power is an important element determining the nature of competition and consequently of market conduct and performance. This is measured by the number and size of firms existing in the market.

Paired with exceptional value-added perks, more consumers will begin to wish to have your product even if they can’t afford it at this moment. That’s because high-income shoppers will share their experiences of landing quality items for a premium rate. From all above points and validation, it is clear that a competitive market is an essential thing for economic growth. A competitive market provides fertile soil in which entrepreneurs can flourish. Just imagine a market which is either oligopolistic or monopolistic.

Pricing and Distribution Strategy: How Can You Improve Your Pricing

By succeeding in doing this, the competition has a dominant position in the market. The strength of the competitor in the relevant market decides his position in the market. Companies will never agree that they have slashed the prices to eliminate competition and would argue that the measures which they have taken are to be competitive. In common parlance, Predatory pricing may be defined as pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run.

In such a situation, any increase in the production of marginal and small farms should first result in increased on-farm consumption. You can even keep your pricing flexible to quickly adjust your prices to changing market conditions. For example, if your competitors are offering discounts or promotions, you should be able to adjust your prices to remain competitive. You should also be able to adjust your prices to take advantage of any seasonal trends or changes in customer demand. Measure your sales performance and customer satisfaction to figure out what works best. Predatory Pricing is a complex form of an anti-competitive conduct.

The biggest advantage of a premium pricing strategy is that it returns a higher revenue than production costs over a short duration. Penetration pricing strategies are widely used by food & beverage companies, restaurants, or even vendors in your local neighborhood. They start with a flavorsome dish available at low prices and gradually increase the price as more people consume their food. Once they have achieved market penetration, their pricing strategy is guaranteed to generate a higher ROI. The firm is a ‘price taker’ means that the sellers have to ‘take’ the price that is given to them by the market forces, i.e. demand and supply.

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As an exporter, while calculating the cost of your product, you need to add up all the expenses that you have incurred from collecting raw materials to manufacturing the final product that reaches your customer. For instance, if you are an apparel manufacturer-exporter, the total cost will start acquiring machinery, material for clothes to packaging, labour and delivery. Becoming thought leadership and acquiring a top position in the export market is an important factor, in order to make the export pricing work.

• This high price tends to attract new customers into the market and then falls due to lower unit costs as economies of scale are achieved.
• Monopoly is another type of market that is exactly the opposite of a competitive market.
• Market price fluctuations, raw material cost and shipping costs are some of the factors that often change.
• If you want to invest in a financial product, you must understand various financial terms.
• There aren’t any universal ideas about how certain products or services are priced.

The extent of concentration represents the control of an individual firm or a group of firms over the buying and selling of the produce. A high degree of market concentration restricts the movement of goods between buyers and sellers at fair and competitive prices, and creates an oligopoly or oligopsony situation in the market. By making the cost of production a factor in the final price, the cost-plus pricing model can encourage businesses to look for ways to reduce costs and increase efficiency. This pricing method can help businesses identify areas where they can reduce costs, as they can see exactly how much each production component contributes to the overall cost. By understanding their costs in detail, businesses may be able to identify opportunities to negotiate better prices for raw materials or streamline their production processes to reduce waste.

This tactic offers numerous pricing options for comparable products in an effort to increase sales for a business. These players have capabilities, capital and economic resources. CCI concluded that Reliance Jio has not abused its dominant position so prima facie there is no case against Reliance Jio. The issue was that OLA was offering heavy discounts to its customers and its cab drivers were also given good incentives.

To be successful, Firms/Organizations must have a unique product that’s in demand. For example, “chip manufacturers” often use this methodology during the introductory phase of a new proprietary product. Another aspect that closely resembles “skimming the cream,” is the high-cost option. Customers purchase products from them knowing they probably paid too much. But these companies have a prestigious reputation for high-quality products and customer service.

Pricing is a technique used to estimate the value that a producer would receive in exchange for their goods and services. With more customers, the company should be able to more efficiently use resources, obtain pricing, and scale operations. The issue was whether Reliance Jio had violated Section 4 of the Competition Act by indulging in anti-competitive practices through predatory pricing. There is a violation of anti-trust law as predatory pricing paves the ground for monopoly by making the market vulnerable to it. The predator is a firm that sets its price so low for a certain period that its competitor has no choice but to leave the market. The loss is also evident but the predator is not bothered about the same.

Sales and marketing in order to learn how to align your pricing and distribution strategies with the continuously evolving market conditions. For regular household products, the aim is to deploy intensive distribution so that the product reaches as many customers as possible. Ranging from e-commerce websites to departmental stores to supermarkets, a toothpaste manufacturer will utilize all the distribution channels as a means to boost brand loyalty among consumers. Businesses customize pricing according to the demand and operational costs of products in different states.

In agricultural-oriented developing countries like India, agricultural marketing plays a pivotal role in fostering and sustaining the tempo of rural and economic development. Although this strategy is hard to sustain, competitive pricing strategies can benefit wholesalers and manufacturers who can limit production costs and streamline their supply chain. That way, they can maintain competitive prices and retain customers. Economy pricing is closely related to competitive pricing and relies on lowering production costs to lower prices, regardless of their competitor’s pricing strategy. Penetrating the market with an exceptionally low-priced item creates a broad customer base.

Because of this, the competitors were finding it very difficult to match OLA and it affected their business and that this amounted to predatory pricing under Section 4 of the Competition Act. CCI in its decision stated that though Shopee was involved in predatory pricing, it was not holding any dominant position in the online platform market. In the year 2002, the Central Government passed the Competition Act to protect the competitive market in India.

The purpose was not to prevent competition but to stop the unfair trade practices which lead to monopolies and dominant positions in the market. The Competition Act also states that anti-competition agreements are void as it has an adverse effect on the market. The Competition Act was amended twice once in the year 2007 and then in the year 2009. Additionally it was observed that DPAG adopted a strategy of fidelity rebates which had the same effect as the exclusive purchase obligations. The strategy in relation to fidelity rebates deterred mail-order traders from setting up alternative delivery structures as that might conflict with their duty of fidelity and thus jeopardise the special price. This prevented the development of potential competition from alternative infrastructures.

Penetration Pricing Strategy is one of the three major Pricing Strategies. Generally, it is used by the new traders to gain a foothold in the market. The sellers wanted to attract more customers by decreasing the price of the product. So that the customers can show interest in purchasing them and they can know the users and the quality of that particular product.

• Farmers may substitute one crop for another crop either for family consumption purpose or for feeding their livestock because of the variation in prices.
• Therefore, the demographic structure of a foreign market should be considered.
• A lower price means that a larger quantity will be sold to meet some fixed cash requirements.
• The customers have no choice and the competitor rises in the market instantly.
• CCI in its decision stated that though Shopee was involved in predatory pricing, it was not holding any dominant position in the online platform market.
• In any developing economy, the producer’s surplus of agricultural product plays a significant role.

From the marketing point of view, this surplus is more important than the total production of commodities. The arrangements for marketing and the expansion of markets have to be made only for the surplus quantity available with the farmers, and not for the total production. This is because, only a portion of the total production is sold in the market after personal consumption by the members of farm household and retention in the farm for several reasons.

It is an occasional Pricing Strategy where the well-known product has reduced its sales drastically. Even though its market share is very good for some time, with any kind of factor, they may be reduced, yeah abnormally. Then to regain the market share and to get back its customers, the price will be reduced. Value Bundling and Discounting Psychology plays an important role in the marketing world. The psychology of retail pricing is probably more important than the price itself.

Hence, it can be concluded that pricing practice of setting a price target and then developing a product that would allow the firm to maximise total profit at that price is called price lining. The purpose of penetration pricing is not to simply offer a very low price; it is to most effectively take market share. The competitor rules the market by operating independently and all the customers are dependent on him. The customers have no choice and the competitor rises in the market instantly. The main reason for his rise in the relevant market is because of the abuse of the dominant position and predatory pricing.

One classic example of this is ordering combo meals at leading fast-food joints. This gives customers more value for their money and encourages them to make larger purchases. Cost Plus Pricing is a very simple pricing strategy where you decide how much extra you will charge for an item over the cost. On the other hand, bargain hunters may only look for the lowest cost possible, without regard to the overall quality or longevity of the item. Learning how to deal with price-sensitive customers helps improve sales and customer service initiatives.

In highly competitive markets, some companies may want to consider turning to marginal costing to ensure that their products are competitively priced. Marginal costing ignores the fixed cost incurred by companies, on the assumption that these costs will be incurred by domestic sales anyway and therefore, only variable costs need to be considered in pricing. Ignoring fixed costs will naturally reduce total costs, enabling lower prices to be set. Where possible, however, companies should not resort to this method of pricing.