By Davies Zhai - Jetek Staff
What factors determine the pricing
In understanding your intended market and the perceived value they place on your opportunity, you are in a position to determine the price of your product or service. A number of factors are likely to influence your decision on a price including the degree of competitive pressure; the availability of supplies; demand for your product or service as affected by cyclical or seasonal changes; distribution costs; production costs and economic conditions. Other considerations relate to the customer which is of a psychological nature.
Premium pricing strategy establishes a price higher than the competitors. It's a strategy that can be effectively used when there is something unique about the product or when the product is first to market and the business has a distinct competitive advantage. Premium pricing can be a good strategy for companies entering the market with a new market and hoping to maximize revenue during the early stages of the product life cycle.
A penetration pricing strategy is designed to capture market share by entering the market with a low-price relative to the competition to attract buyers. The idea is that the business will be able to raise awareness and get people to try the product. Even though penetration pricing may initially create a loss for the company, the hope is that it will help to generate word-of-mouth and create awareness amid a crowded market category.
Economy pricing is a familiar pricing strategy for organizations that include Walmart, whose brand is based on this strategy. Aldi, a food store, is another example of economic pricing strategy. Companies take a very basic, low-cost approach to marketing--nothing fancy, just the bare minimum to keep prices low and attract a specific segment of the market that is very price sensitive.
Businesses that have a significant competitive advantage can enter the market with a price-skimming strategy designed to gain maximum revenue advantage before other competitors begin offering similar products or product alternatives.
Psychological pricing strategy is commonly used by marketers in the prices they establish for their products. For instance, $99 is psychologically "less" in the minds of consumers than $100. It's a minor distinction that can make a big difference.