Of all the marketing strategies you will use in your business, the pricing strategy is one of the most important. Along with choosing the right product, intelligent marketing, and a sound sales plan the correct price strategy will determine your revenues and market share. Usually the leaders in their industry use market skimming as a pricing technique.
The strategy of a computer manufacturer is to come up with a new laptop every 8 months or so. He lowers the price of the older, unsold models (in their maturing stage) and keeps the price of the new laptops (in their introductory stage) higher. The new laptops will demand a higher price on the basis of their newer features.
So the manufacturer is skimming the price (or skimming the market) at different stages – introductory, growth, maturity and decline. He gains the maximum profit through the highest price that each of these stages command.
This strategy will work in a large market with sufficient buyers with a high product or service demand and a company with low cost structure. In the above example with laptops, the demand is high, there are plenty of recurring buyers with an industry which has a low cost structure that is technology enabled.
Now the challenge for the company comes from the fact that there are quite a number of competitors in this market. If all of these competitors have a full line of similar products each with a varying life cycle buyers will find it extremely difficult to judge the product in terms of its quality or service or the value for price.
Faced with a barrage of similar looking products the buyer will choose a laptop with maximum features at the lowest price. And if your company is not the one with the lowest price it may hurt its brand reputation for it will seem as if you have been overpricing products which will eventually lead to a drop of sales.
Before any price strategy is chosen ensure that you first study the market carefully. One should have a clear idea about the customers’ behaviour and the way in which the competitors will act or react. And this strategy should continually be tested while it is applied so as to ensure that the factors which led to this strategy have not changed over time with changing market conditions.
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