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Product Pricing as a Marketing Strategy

written by: Vikas Vij•edited by: Ronda Bowen•updated: 3/1/2011

Wish to gain a larger market share for your product or service in a crowded marketplace? Consider product pricing as a marketing strategy to achieve a breakthrough in a competitive business environment.

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    Pricing as a Key Factor in the Marketing Mix

    Price Market The famous 4P’s of the Marketing Mix include Product, Price, Promotion and Place. All of these 4 factors can be used individually or in combination to devise the marketing strategy of a business organization. Product pricing as a marketing strategy can be highly effective in certain situations. However, price is probably the most sensitive element in the marketing mix, which should be managed very judiciously to serve the organizational goals.

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    Introductory Price Strategy

    When a new or innovative product is introduced into the market, it can be a challenge to attract the customers’ attention. Customers do not have a similar existing product against which they can benchmark the pricing before buying. Furthermore, the intrinsic value proposition of a new product is difficult to judge unless a customer actually uses it and experiences its benefits.

    Therefore, at an initial stage of a new product launch, the company may decide to keep a special low introductory price. This helps the customers to take their initial buying decisions and use the product and see its benefits. Later on the price can be increased once the product gains market acceptance and receives positive word of mouth publicity from the initial users.

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    Penetration Pricing Strategy

    Penetration pricing strategy is typically applied in situations where the market is already crowded with several strong players and there is stiff price competition. Therefore, a new market entrant may have to intentionally lower the price below the prevailing market price levels to gain a foothold in such a competitive marketplace.

    Penetration pricing may also be used in new market segments where there is no previous demand for a particular product or service. In such segments, a discovery can be achieved with a low price with the intent to arouse the interest of the consumers towards the particular product or service.

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    Prestige Pricing Strategy

    Pricing is one of the key determinants of a brand’s image. Most brands are priced low because they target the mass market. However, some brands are introduced with a very high price to match with the premium image of the brand. They target a select buyer segment that is willing to pay a high price for the value of exclusivity that the brand delivers.

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    Dynamic Pricing Strategy

    Certain products such as food and gas and other essential commodities may have to keep up a dynamic pricing strategy to match with the market price fluctuations. In such cases, the price is driven by the competitive market forces. Products and services that are highly price sensitive usually have to follow a competition-driven price strategy. Product pricing as a marketing strategy becomes most essential in such product categories.

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    Skimming Price Strategy

    Sometimes a new product may be very unique with little competition from other players and its demand may far outstrip its supply. As long as such a situation exists, the marketers may use a market skimming price strategy and sell the product at very high profit margins. The prices eventually lower when other competitors enter the market, but initially the product innovator can skim the top layer of the market with high prices. This is particularly true in technology related products where innovation plays a key role.

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    Pricing: A Critical Element of Marketing

    Among the 4 P's of marketing, pricing may be the most sensitive one for a majority of products and services. In a highly competitive free market environment, a slight change in pricing can have a potentially major impact on sales. Pricing must always be decided in such a way that it keeps a balance between profit margins and sales volume. Wrong pricing can cause the market share to erode and allow competitors to make a dent in the company's core customer base. Therefore, pricing strategies must be devised and used judiciously and with great caution..

    Photo Credit: Lockheed