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Pricing As A Powerful Marketing Tool

Nov 11, 2007
Products that provide the same kind of utility to the consumer, but are branded differently, have different prices, more often than not. The price is a part of the marketing strategy and has to be decided upon, after careful consideration.

As in the case of any other business, it is essential to have a pricing strategy, for a business that is based online. This depends on a number of different factors.

The foremost among these are the profiles and preferences of the website's visitors. It is important to find out whether they make purchases on the basis of the prestige value of various services and products or are looking for bargains. Besides, the cost of producing or purchasing and, then, marketing has to be determined.

Objectives

Pricing strategies are generally aimed at either of the following:

Earning profits in the short term:

This implies trying to earn as much money as possible, out of the sale of each unit, even as the number of customers or clients may not be large. This could imply charging a huge premium on the prices.

Increasing market share:

This can be done by pricing the service or product lower than comparable ones. Although earnings may initially be low, but one can expect to sell related products and services later, as the customer or subscriber base is enlarged.

However, the pricing may also try to achieve any of the following objectives:

Survival:

When short-term survival is the main aim, companies lower prices, so that sufficient revenues can be generated. This is not sustainable in the long term, however, as the losses continue to mount with each unit sold.

Altruism:

Prices of essential services or products may be lowered for the benefit of those consumers who would otherwise not have the means to be able to purchase these. Economical versions of standard services or products may be provided, after imposing some limits regarding the benefits or features.

Demand:

The prices and availability of other products, the income of consumers and their tastes, among others, are the drivers of consumer demand. For instance, demand is likely to go down, if a competitor sells a comparable service or product at a lower price.

Demand and supply tend to strongly affect services or products that are more or less the same as many others. So, the prices change quite often. Exclusivity can, therefore, make a lot of difference. This could be in the form of a unique product or service, or exclusive rights to market it. Appropriate pricing and advertising can, then, help to increase demand.

Revenue estimates:

After consumer demand has been established, revenue estimates have to be arrived at, in order to determine appropriate pricing levels.

Some graphing and mathematical analysis is usually required to determine the sales level, where the total costs i.e. the sum of fixed and variable costs can be covered and, so, a break-even can be achieved. Profits start being earned beyond that point. For optimal pricing, finding out that profit point is essential.

Pricing methods:

1. Some methods of pricing that are oriented towards demand are as follows:

2. A high price can be charged for products that are innovative, since those who purchase such products initially are not likely to be very sensitive towards pricing. After some time, the prices can be lowered, to facilitate purchases by those who are more price-sensitive. Ultimately, as similar products begin being offered by competitors at lower prices and with the maturity of the product, prices will have to come down.

3. When some market segments tend to be sensitive to the prices, these can initially be set low. A lot of competition can, thus, be kept from entering the market. This can lead to a decrease in the cost for marketing, when the customers gained in this way make repeat purchases, in case they are satisfied with their experience of purchasing the service or product for the first time.

4. Some buyers believe that a product is of high quality, only if it is priced higher than those in the same category. So, the prices have to be at a premium, in order to attract such buyers.

5. Pricing can also be determined by first finding out from the consumers as to what amount of money they would readily pay for the service or product. The marketers can then work backwards, to arrive at the price.

Pricing, obviously, also has to take into account any relevant governmental regulations, allow for geographic adjustments, as appropriate, and to make adjustments with respect to any discounts or rebates that may have to be provided, from time to time.
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