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Pricing Strategies

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“Pricing is the functions of determining the products value in monetary terms.” W.J.Stanon

In a business organization, while setting the prices of its products, needs to ensure that prices must cover costs incurred for producing products and profit margins. If the price of a product does not cover costs, then financial resources of the organization would exhaust, which would ultimately result in the failure of business.

Marking a proper price for the product is very important which comes under marketing of business. Just pricing their product looking at the aspect of coverage of manufacture and a little amount of return on investment is not enough. As a marketers, they need to know strategies that would make people buy their stuffs. Two of those strategies are psychological and promotion pricing under which we customers fall.

One of the pricing strategies is psychological pricing. It refers to pricing that considers the psychology of prices, not simply the economics. Indeed, the price says something about the product.

For instance, many consumers use price to judge quality. A Rs.1000 bottle of perfume may contain only Rs.300 worth of scent, but people will be willing to pay the Rs.1000 because the high price indicates that the product is something special.

However, this does not work forever. When consumers can judge the quality of a product by examining it or by calling on past experience with it, price is less used to judge quality. But when they cannot judge quality, price becomes an important signal. Just to give an example: who is the better lawyer? One who charges Rs.500 per hour or one who charges Rs.5000? It would need a lot of research and experience to answer this question objectively. Most of us would simply assume that the higher-priced lawyer is the better one.

In fact, for most purchases, consumers simply do not have all the skill or information they need to work out whether they are paying a good price. Often, time, ability or inclination to research different brands or stores, compare prices and get the best deals is lacking. Therefore, psychological pricing may be the most powerful one of the price adjustment strategies.

Promotion pricing is another strategy that calls for temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales. Thus, companies try to create buying excitement and urgency. Promotional pricing could take the form of discounts from normal prices to increase sales and reduce inventories. Also, special-event pricing in certain seasons to draw more customers could be used. Even low-interest financing, longer warranties or free maintenance are parts of promotional pricing.

However, promotional pricing can have adverse effects. If it is used too frequently and copied by competitors, price promotions can create customers who wait until brands go on sale before buying them. Or the brand’s value and credibility can be reduced in the eyes of customers. The danger is in using price promotions as a quick fix in difficult times instead of sweating through the difficult process of developing effective longer-term strategies for building the brand. For that reason, price adjustment strategies such as promotional pricing must be treated with care.