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Of all the Ps in marketing, pricing is the one that directly correlates to the value of the goods or services. This is exhibited by the fact that for any business, pricing strategy affects the profit and loss in more profound way than anything else like promotion or people. Pricing not only decides the selling point but also determines the positioning of the product as mass market, premium or luxury. Usually, pricing is done keeping the cost of production, distribution and profit margins in consideration. However, there is a psychological aspect of pricing which is used to invoke different customer reactions. In this case, the marketer attempts to influence buying decisions by setting prices that are emotionally pleasing to buyers. Psychological pricing is of following types:
(1) Prestige pricing: It is based on the assumption that the consumers do not buy goods or services at prices they consider to be too low. The demand curve for the prestige products within a certain range. The higher the price, the greater the quantity demanded, but when price rises too high, the product is considered overpriced and quantity demanded falls off. When price falls too low, the product is suspected of lacking quality.
(2) Leader pricing: It is opposite of prestige pricing. Here the firm keeps the price lower than the normal price. The objective is to gain greater consumer interest in its overall product line. Leader pricing is most often used.
(3) Odd pricing: It means setting prices that end in odd numbers such as Rs. 49, Rs. 39.35 etc. Here consumers gain the impression that the firm thinks carefully about its prices and sets them as low as possible.
(4) Price lining: It involves selling products at a range of prices with each price representing a distinct level of quality. Price lining involves two decisions
a. Defining the pre-range of the firm’s offerings and
b. Establishing specific price points within that range. While developing a price line, the firm must consider the following factors:
- Price points must be kept far enough apart so that customers perceive quality difference among different brands.
- Price points must be kept further apart at higher prices because consumer demand becomes more inelastic.
- The relationship among price points must be maintained when cost rises, so that clear differences are retained.
- Price lining has the advantage of offering an assortment of products, attract market segments, reduce competition by carrying various lines throughout the price range and increase overall sales volume.
(5) Bait Pricing: Bait pricing can also build customer traffic. For example, a furniture store may advertise a chair ‘A’ at a very low price but a customer who comes to inspect the chair ‘A’ will be talked about the faults in chair ‘A’ and advantages of purchasing chair ‘B’ which is high priced. Bait and switch schemes are illegal.
So what all goes into pricing strategy for a brand? Want to know more about pricing in marketing strategy? Learn more about different types of pricing policy only at the University Canada West.
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