Factors Affecting Pricing Decisions:

When one starts thinking about factors affecting pricing decisions, the first and foremost is the
consideration of costs and profits but this can lead to various problems of consumer acceptance
and stabilizing sales volumes.

To take care of these problems, one must consider the following factors that affect the
pricing decisions:

(a) Current Demand for the Product:

Current demand of the product decides the pricing decisions. Current demand can show three
variations normally that can be explained as follows-

i. Steady Demand- When the demand is steady, prices are maintained at the same level as
competition.

ii. High Demand- When the demand is high, prices can be increased to get higher profits.

iii. Low Demand- When the demand is low, prices should be maintained at the same level even if
the competitor increases them. The other alternative is to maintain prices on par with
competitors, but keep offering consumer promotions to attract more customers and increase
demand.

(b) Current Supply of the Product from Various Sources:

Current supplies can be of three types normally as follows-

i. Steady Supply- When the supplies are steady, prices remain steady.

ii. High Supplies- When supplies are high, prices drop in the case of commodities but in the case
of FMCG, the marketing manager will offer consumer promotions and hold the price levels. This
helps him attract more customers as the customer effectively sees the product dropping, as
additional benefits in terms of promotions come with the product.

iii. Shortages- During shortages, commodity prices go up but in FMCG it is a time to consolidate
hold on the consumers by increasing loyalty of the consumers. So the marketing manager
ensures steady supplies to the customers, which may be at lower quantities.

(c) Pricing of Competition:

Pricing of competition plays a major role in pricing decisions.

Price decisions are strategically taken in the following ways:

i. Follow the Leader:

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When the competitor is stronger than your product and is the market leader with higher market
share than your market share, marketing managers always follow the leader in pricing decisions
and maintain the price parity.

ii. Premium Pricing:

If your product is the market leader, you can maintain premium pricing to earn more profits than
the competitor as the customers are willing to pay premium for the popular product.

iii. Lower than Competitor:

When your market share is much lower than the market leader, it is advisable to maintain prices
lower than the market leader and attract consumers because of the saving achieved.

iv. Market Penetration Pricing:

In a highly competitive market with many players, the marketing manager may use this pricing
policy that helps him enter the market and establish its position. In market penetration pricing,
the product is offered to consumers at nearly the cost price so that the difference between the
product and the competitor is very high.

This attracts customers for trials and if the product is found to give higher returns than the price
paid, many customers switch over to this product. The marketing manager may increase the price
of the product gradually.

v. Market Skimming Pricing:

When an innovative product is introduced in the virgin market, where market entry barriers are
absent and entry of competition is a matter of time, the marketing manager can use this strategy
to earn maximum profits due to its innovativeness. The marketing manager may not change the
price after entry of the competitors, but offer high consumer Pull promotions to maintain sales
volumes, making it difficult for the competitors to establish themselves.

(d) Objective behind Pricing:

Objective pricing is basically simple and that is to earn maximum profit by selling the product.
This is possible when the consumers are waiting to buy your product and you have monopoly,
but normally that is not the situation and one needs to take pricing decisions based on various
objectives.

The following pricing decisions are found to be in force:

i. Profit Maximization:

Organizations work for the single most important objective of making profit and lots of profits at
that. Getting very high profits is possible only if the product is essential and the organization has

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a monopoly. If the market is competitive, there are limitations on the price and so profit
maximization comes in. The marketer has to price the product in accordance with the pricing of
the competitor.

ii. Price Acceptance:

When the product is not an essential product, the marketer cannot keep a high price even in
monopoly situations as the consumers may not accept the product at a price higher than their
expected value of benefit in return. So the marketer needs to find out the price at which the
consumer will readily purchase the product. A consumer market research survey will give an
answer to this.

iii. Market Entry Pricing (Market Penetration Pricing):

When the market has strong competition with very high market share, it becomes difficult to
attract the customers towards a new product with ‘me too’ qualities. So the marketer needs to
create a USP and if he cannot create any product feature giving better benefit, he can go in for
low price entry that creates a money-saving attraction for the consumer and the chances of the
consumer trying and adapting a new product increases. In this situation, the saving needs to be
substantial and attractive.

iv. Superior Quality Image (Premium Pricing):

If the marketer can create a superior product quality image for the product, he can go in for
premium pricing where the marketer can say that the ingredients are of superior variety and give
better benefits to the consumer that suit the premium price.

For example, when BOOST was launched, it talked about being ‘more creamy and more
chocolaty’ and so was launched at a premium price even when the competitor Bournvita was
holding a near 100% market share.

When HUL launched ‘Dove’ they also advertised it to have superior quality ingredients and so it
was launched at a high price and it continues to be priced at a higher level than all the soaps in
the market.

v. Blocking Competition Pricing:

A brand leader who is ruling with a high market share can decide to work on wafer-thin profit
margins and sell the product at a very very low price, making the entry in the market difficult for
new products (because of high investment cost and marketing cost to establish).

This way it becomes very difficult to enter the market and challenge the market leader. For
example, Parle Glucose is being sold at an unbelievably low price and so no new product has
entered this market to challenge their monopoly for many years.

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Factors Affecting Pricing Decisions (With Impact):

The setting of the price will depend on the factors affecting the pricing decisions.

Let us look at these factors one by one and their impact on the pricing decisions:

I. Determining Demand:

The first step in determining the demand is to decide the segment of the market where you want
to position your product. While discussing the product development we have seen that the choice
of segment will lead to minimum required features and the benefits that the customers will
expect from the product and the price that customers in this segment will be willing and capable
of paying.

The choice of segment also tells us the profile of the customer and the number of customers
present in the segment in a given area. Market research will let us know the consumption pattern
of these customers and therefore the frequency of purchase of the product and the monthly
expected demand for the product. A good marketing research agency will give you these figures
authentically.

The following are some of the reputed market research agencies-

i. AC Nielson

ii. ORG-Marg

The market research agency will also tell the marketer whether the demand is growing, stagnant
or reducing. Depending on the condition of the demand, the marketer will decide the pricing
strategy and promotion strategy.

II. Determining the Current Supply:

Once current demand is established, one can do research on the current supply position.

The market may have the following conditions:

i. No Supply:

In such a condition, the marketer has a pioneer advantage position. If the product idea is
acceptable, he can have premium pricing strategy to skim the market till such time that
competition sets in, when he can reduce the price to make market entry difficult for competition.

If the product is a new concept, the marketer will be required to do concept selling that requires
high costs. Again the marketer will be required to sell the product at a high price to cover extra
marketing costs for concept selling.

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ii. Not Adequate Supply from Few Competitors:

The competitor can enter the market with the ‘ME TOO’ pricing of the market leader. Since the
market is starved, acceptance will not be difficult.

iii. Adequate Supply from Few Competitors:

In such a situation, the marketer will be required to enter the market with a ‘Penetration pricing
strategy’ i.e., keep the price lower than that of competitors to make the customer aware of low
price – better quality or low price – same quality condition.

iv. Full Supply from Many Competitors:

Here the marketer needs to decide whether to enter the market and fight competition to gain
market share. He should do so if the market is growing at a good rate, but if the market is not
growing, he should think twice before entering the market.

To enter the market, he needs to use Product Differential Policy where he gives the customer the
same product with a big difference and more benefits. This will attract the customers towards the
product and the chances of success are higher. E.g. Dove.

v. Analysis of Suppliers:

In case of Industrial/Institutional products, one more aspect is required to be considered, viz.,

who are the current suppliers and is the customer happy with the current suppliers. The analysis
will tell the manufacturer whether he has any chance to enter the market and get orders from the
customers.

III. Analyzing Competitor’s Pricing:

The marketer will analyze the competitor’s pricing policy to understand the reasons and
objectives behind the pricing adapted by the competitor.

i. There is always a chance that the competitor is pricing his products at a very low price as he is
the market leader with a very large market share. This way he can block the market entry of any
competitor.

For example, Parle Glucose. In such a situation, the marketer is required to analyze whether he
can sustain losses for a long period of time till he gets enough market share, to make it
economical to sell at a low price.

The marketer can come with product differential policy and charge a higher price but then he
will be required to spend a lot of money educating the customers that his product is better in
quality than the competitor’s and so they should pay more for his product.

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ii. There is also a chance that the competitor is using market skimming price. The marketer can
enter the market at a much lower price and give price advantage to the customers and capture a
large market share.

Caution is required in such a condition to ensure that consumers do not think that the price is
substantially low which means quality must also be low. In India, most customers have this
mentality. Imported products/high priced products mean the best quality.

For example, when Videocon entered the refrigerator and other products market, it had a cost
advantage of ‘Tax Holiday’ for fifteen years because the factory was established in the
economically backward area of Ahmed Nagar district. The current players then were Godrej,
Kelvinator, Voltas and Alwyn etc.

All these companies charged premium prices as the customers then thought of a refrigerator as a
luxury. Videocon priced all its products low and marketed them well to gain a market leader
position in all the categories. Videocon maintained its market leader position for many years till
Whirlpool and LG dethroned it on the quality aspect.

IV. Selecting Pricing Method:

Depending on the demand, supply and competitor’s analysis, the marketer then selects his
pricing method/strategy to decide the price and promotions.

The following methods are common:

a. Mark-Up Pricing:

Mark-up pricing is the method in which the price is determined in the method of pricing based
on cost calculations.

Mark-up pricing method is used for commodities in India by traders where they add all the costs
to the purchase price (storage, inventory cost, damages caused in storage, thefts, insurance etc.)
along with the desired profit percentage before deciding the selling price.

In western countries where government regulations about MRP (maximum retail price) are
absent, the retailers decide their mark-up price and so the same product is available at differing
rates in different retail outlets. In Walmart, the entire product range is at the lowest mark-up
price.

b. Value-Based Pricing:

Value based pricing needs consumer research to find the consumer’s perception about the
product. The pricing is based on the perceived value of the product by the consumers. E.g. when
an organization selling coconut hair oil adds paraffin to it in equal quantity, the price of the final
product should drop as paraffin is priced much lower than coconut oil.

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But in actual effect, the coconut oil with paraffin sells at a much higher rate than pure coconut oil
as consumers perceive its non-sticky quality at a much higher rate.

Similarly, most of the luxury products are priced at a much higher price than their production
cost as consumers perceive them to be of a higher value.

c. Target Return Pricing:

In this method, the manufacturer decides the quantum of profit he wants to earn and sets the
price based on expected sales levels. If the targeted sales are achieved, the manufacturer gets his
targeted profit. If more sales are achieved, he gets more profits and if lower sales are achieved,
he gets lesser profits.

d. Going Rate Pricing:

This method of pricing is used when there is competition already present in the market. The
marketing manager decides to sell the product at an average price of the similar products
available in the market. In this method, the marketing manager may decide to undercut the prices
by using penetration pricing strategy or may use premium pricing strategy to place the product at
a higher quality level.

V. Estimating Costs:

Depending on the demand, supply position and the competitor’s price analysis, the marketer will
finalize his market entry strategy and the promotional strategy and work out the cost required.
Indian entrepreneurs look for breakeven to be achieved in a short period of a maximum of two
years because there are very few Indian products which are launched on a large scale and
become successful.

Multinationals are willing to wait and watch for a longer period of time and are willing to keep
spending money on new products for many years. Multinationals are happy if the product
achieves breakeven in five years.

VI. Setting Pricing Objectives:

Setting pricing objective is a strategic decision decided by the management on what they want to
achieve through the launch of the product. Various pricing objectives can be listed as follows-

Survival- In this case, the organization lowers its prices to survive the onslaught of the
competitor as a short-term strategy or sometimes long-term objective to keep getting sales,
maybe at lower profits.

Profit- An organization may decide at a particular profit level irrespective of sales volumes.

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Sales- The organization may decide a particular volume of sales and decide pricing based on that
volume of sales. It can decide high price at a low volume of sales and low price for a high
volume of sales.

Status Quo- In this objective, the marketing manager maintains price levels in comparison to
competition and holds on to the market share without losing it.

VII. Value Chain Analysis:

The pricing also depends on the analysis of value chain. The method was introduced by Michael
E. Porter who proposes that a superior value chain can lead to reduced costing and higher profits.
If the organization’s value chain is superior, the organization can also demand premium price for
its products benefiting from both sides – (a) reducing the cost and (b) demanding premium price.

Value chain activities include-

(a) Inbound Logistics- Ordering, receiving, warehousing inputs (such as raw materials), then
distributing them to operations as needed.

(b) Operations- Transforming inputs into finished products and services with high quality at
lower costs.

(c) Outbound Logistics- Warehousing/distribution of finished goods, without any stock-out

situations or high inventories at any point.

(d) Marketing & Sales- Identification of customer wants/needs, creation of sales through proper
promotional activities.

(e) Service- Customer support before and after the goods are sold. The activities that are
included-

i. Installation of machinery

ii. Training of machine operators

iii. Rectifying the settings to suit the purchaser

iv. Providing maintenance support

v. Providing spares

(f) Firm Infrastructure- Structure, leadership, control systems, and company culture.

(g) HR Management- Recruiting, hiring, training, compensation.

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(h) Technology to support value-creating activities- Research and development of existing and
new products.

(i) Procurement- Purchasing inputs such as materials, supplies, equipment.

VIII. Selecting Final Price:

Selecting the final price becomes a mere formality after doing all the above steps.

Adapting the Price:

Adapting the final price is different in different industries. In the consumer industry where MRP
(Maximum retail price) is compulsory from the government authorities, the same price pan India
becomes a rule.

Some organizations had tried to use geographical pricing which led to confusion in the minds of
customers and resulted in the loss of sales. For industrial and institutional products where there is
no MRP, prices can be adapted in different methods. Let us look at various pricing methods.

Geographical Pricing:

In geographical pricing, different prices are planned for different geographical regions.

The reasons behind this can be listed are as follows:

(a) Variations in Tax Rates:

In India, the government is trying to bring in uniformity in tax rates by introducing VAT earlier
and now the GST (goods & services tax). Earlier, the tax structures in all the states were different
for different products and that led to products moving from one state to another without any
papers and people making money with complete loss to the state government whose taxes were
high.

Currently, also with taxes on fuel having high differentiation within two states, the truckers pick
up the maximum quantity of fuel in a state where the prices are low and avoid buying fuel in that
state. For example, Maharashtra has very high VAT on fuel and truckers buy high quantity of
fuel before they enter Maharashtra.

The variation in tax rates leads to differences in the final consumer price for commodities and
illegal border crossing of products in packaged commodities (FMCG).

(b) Significant Difference in Transport Costs:

In commodities and raw materials and machineries where the transportation is added to the basic
price while supplying to customers, the end price changes from customer to customer on the
basis of the significant differentiation in the transport cost.

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This is one of the reasons why the industry chooses to be close to the source of raw material, if
the quantity of raw materials required is substantially high. For example, steel industry is located
near the source of iron ore and supply of coal.

(c) Variation in Channel Structure:

Change in channel structure affects the pricing to a great extent as there are profit margins of the
channel partners and depends on the number of channel partners between the manufacturer and
the customer (levels of distribution channels). For example, the products in defense canteens are
much cheaper because of the change in channel structure and the tax differences.

(d) Collaboration with Local Organizations:

When an organization is engaged in international sales, there is difference in pricing between

products exported and products manufactured in that country with collaboration of the local
organization. The reason behind this is due to the saving on import duties and transportation
costs.

(e) Strategy to Fight/Take Advantage of Local Competition:

Organizations can have a different pricing structure as a strategy to fight competition in a

particular location. For example, they can have a low price to fight competition or can have a
higher price for taking advantage of not having competition (monopoly).

Price Discounts & Allowances:

Depending upon the product and market conditions, the manufacturer can decide to offer price
discounts and allowances to the customers which are a part of negotiating the purchase deal with
various customers.

Basically, this kind of price adaptation is a part of industrial/institutional selling practices where
pricing is a part of the negotiations of the supply contract. In such a pricing, all the pricing
elements are quoted differently along with the base price. For example –

i. Base price for product ‘X’ is Rs. 10,000/-.

ii. Add excise duty @ 10% – Rs.1,000/-.

iii. Add installation cost @ Rs.3,000/-.

iv. Add Vat@ 12% – Rs. 1,680/-.

v. Add Transportation – Rs.2,500/-.

vi. Add annual maintenance contract (AMC) Rs. 2,500/- per visit (minimum one visit) with cost
of spares extra.

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vii. Add training of operators @ Rs. 2,000/- per operator.

While negotiating the final price, the sales person offers discounts and allowances depending on
the quantity being negotiated, long term association expected with the customer, payment terms
being negotiated etc. The sales officer will give some of the above named items free to
customers and negotiate higher quantity.

The objective here is to extract the maximum price even if the items may have already been
added while calculating the base price. The sales person who negotiates the price at the highest
level with maximum quantity is then rewarded in terms of incentives.

Discounts and allowances can be a part of the pricing for FMCG products on a regular basis.

The manufacturer can offer various discounts that can be listed as follows:

i. Quantity Discount- Any customer who is purchasing a quantity more than a stipulated quantity,
is offered discounted pricing to motivate him to keep doing so.

ii. Payment Policy Discount (Cash Discount)- In industrial sales, most of the customers have a
policy to pay the suppliers after 90 days. To motivate them to pay on delivery or in advance,
sellers offer cash discounts to the buyers in accordance with the interest rates operating in the
financial markets.

The manufacturer can also offer certain allowances as a pricing policy to the FMCG
customer which can be listed as follows:

(a) Sales Staff Allowances:

Sending company sales staff proves to be very expensive as the business and profit generated by
the company sales staff and the salaries paid to them do not match. But not giving regular service
coverage to the retailers/customers can lead to competition gaining advantage and loss of sale
permanently.

To avoid this, many manufacturers offer fixed or variable allowance to their channel partners
towards appointment of interim coverage sales staff allowance. By way of this, they ensure that
channel partners appoint exclusive sales staff who give coverage to retailers/customers in
absence of the company staff.

(b) Van Working Allowance:

Sales staff working ready stock has many inherent advantages. Most of the companies/channel
partners avoid this process as it involves higher cost if not properly done. This is more so when
selling is done in the rural markets. Rural market working involves travelling up to 40-80 kms a
day but achieves visit to only 15-30 retailers/customers.

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Booking orders and then supplying them for products having high volume/value sales per
customers is possible but when the product value/volumes are small per customer, it becomes
uneconomical.

Many times when brand loyalty and product differentiation between competitors is low, the
customer may purchase an alternate product and refuse to accept delivery of stocks ordered
earlier leading to costs without effecting sales.

To avoid such incidences, most of the organizations interested in rural market coverage offer van
working allowance to their channel partners. The organizations may offer fixed per day/route
allowance every month or sometimes send their own promotional vans regularly to ensure rural
market coverage and sales.

When Hindustan Unilever found that their volume sales were lower than Nirma due to non-
availability of their products in the rural markets, they initiated rural promotional vans through
their channel partners that demonstrated the product superiority of ‘RIN’ by showing
promotional advertising films to gain rural market share. They then introduced lower priced
products for rural markets – ‘Wheel’ and ‘Lifebuoy’ to regain market leadership in both urban
and rural market.

When Colgate-Palmolive discovered that they were number two in volume sales as
‘Pepsodent’ had overtaken them due to their rural market presence and absence of Colgate
in the rural market, they initiated rural market coverage through their channel partners
giving them specific van allowPricing Strategies Definition

The main aim of the management of every organization is to maximize profits by effectively
getting the products of the shelf; let’s define and explain this better.

Pricing strategy is a way of finding a competitive price of a product or a service. This strategy is
combined with the other marketing pricing strategies that are the 4P strategy (products, price,
place and promotion) economic patterns, competition, market demand and finally product
characteristic. This strategy comprises of one of the most significant ingredients of the mix of
marketing as it is focused on generating and increasing the revenue for an organization, which
ultimately becomes profit making for the company. Understanding the market conditions and the
unmet desires of the consumers along with the price that the consumer is willing to pay to fulfill
his unmet desires is the ultimate way of gaining success in the pricing strategy of a product or a
service.

Do not forget the ultimate goal of the company is to maximize profit being in competition and
sustaining the competitive market. However to maximize profits along with retaining your
consumer you have to make sure you choose the right pricing strategy. The correct strategy will
help you attain your objectives as an organization.

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Pricing Strategies Definition

The main aim of the management of every organization is to maximize profits by effectively
getting the products of the shelf; let’s define and explain this better.

Pricing strategy is a way of finding a competitive price of a product or a service. This strategy is
combined with the other marketing pricing strategies that are the 4P strategy (products, price,
place and promotion) economic patterns, competition, market demand and finally product
characteristic. This strategy comprises of one of the most significant ingredients of the mix of
marketing as it is focused on generating and increasing the revenue for an organization, which
ultimately becomes profit making for the company. Understanding the market conditions and the
unmet desires of the consumers along with the price that the consumer is willing to pay to fulfill
his unmet desires is the ultimate way of gaining success in the pricing strategy of a product or a
service.

Do not forget the ultimate goal of the company is to maximize profit being in competition and
sustaining the competitive market. However to maximize profits along with retaining your
consumer you have to make sure you choose the right pricing strategy. The correct strategy will
help you attain your objectives as an organization.

Pricing Strategies in Marketing

Following are the different pricing strategies in marketing:

1. Penetration Pricing or Pricing to Gain Market Share

A few companies adopt these strategies in order to enter the market and to gain market share.
Some companies either provide a few services for free or they keep a low price for their products
for a limited period that is for a few months. This strategy is used by the companies only in order
to set up their customer base in a particular market. For example France telecom gave away free
telephone connections to consumers in order to grab or acquire maximum consumers in a given
market. Similarly the Sky TV gave away their satellite dishes for free in order to set up a market
for them. This gives the companies a start and a consumer base.

In the similar manner there are few companies that keep their product cost low as their
introductory offer that is a way of introducing themselves in the market and creating a consumer
base. Similarly when the companies want to promote a premier product or service they do raise
the prices of the products and services for that particular time.

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2. Economy pricing or No Frill Low Price

The pricing Strategies of these products are considered as no frill low prices where the
promotion and the marketing cost of a product are kept to a minimum. Economy pricing is set for
a certain time where the company does not spend more on promoting the product and service.
For example the first few seats of the airlines are sold very cheap in budget airlines in order to
fill in the airlines the seats sold in the middle are the economy seats where as the seats sold at the
end are priced very high as that comes under the premium price strategy. This strategy sees more
economy sales during the time of recession. Economy pricing can also be termed as or explained
as budget pricing of a product or a service.

3. Use of Psychological Pricing Strategies

Psychological pricing Strategies is an approach of gathering the consumer’s emotional respond

instead of his rational respond. For example a company will price its product at Rs 99 instead of
Rs 100. The price of the product is within Rs 100 this makes the customer feel that the product is
not very expensive. For most consumers price is an indicating factor for buying or not buying a
product. They do not analyze everything else that motivates the product. Even if the market is
unknown to the consumer he will still use price as a purchase factor. For example if an ice cream
weighted 100 gms for Rs 100 and a lesser quality ice cream weighted 200 gms is available at Rs
150, the consumer will buy the 200 gms ice cream for Rs 150 because he sees profit in buying
the ice cream at lower cost ignoring the quality of the ice cream. Consumers are not aware price
is also an indicator of quality.

4. Pricing Strategies of Product Line

Products line pricing is defined as pricing a single product or service and pricing a range of
products. Let us take and understand this with the help of an example. When you go for a car
wash you have an option of choosing a car wash for Rs 200 or a car wash and a car wax for Rs
400 or the entire package including a service at Rs 600. This strategy reflects a strategic cost of
making a product popular and consumed by the consumer with a fair increment over the range of
the product or the service. In another example if you buy a pack of chips and chocolate
separately you end up paying a separate price for each product; however of you buy a combo
pack of the two you end up paying comparatively less price for both and if you buy a combo of
both in a higher quantity you end up paying even lesser.

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For the manufactures of the product manufacturing and marketing of larger pack is much more
expensive as it does not fetch them good amount of profit, however they do the same to attract
more consumers and keep them interest in their products. On the other hand manufacturing
smaller packs and lesser quantity is more beneficial and fetches more profit for the manufacturer
of the product.

5. Pricing Optional Products

It is a general approach, if the companies decrease the price of a product or a service they do
increase their price for their other available optional services. Let’s take a very simple and a
common example of a budget airline. The prices of their airfare are low however they will
charge you extra if you want to book a window seat, if you want to travel with your family and
want to book an entire row together you might have to end up paying extra charges as per the
their guidelines, in case you have too much of luggage to carry you will end up paying extra on
the same, in fact you will end up paying extra charges even if you need extra leg space in a
budget airlines. You can say that even if the price of the air fare is low you will end up paying
more for the extra yet mandatory services that you will require as you travel.

6. Pricing of Captive Products

Captive products have products that compliment the products without which the main product is
of no use or is useless. For example an inkjet printer is of no use without its cartridge it will not
work and have no value and a plastic razor will have no value without its blades. If the company
is manufacturing the inkjet printer it will have to manufacture its cartridges and if the company is
manufacturing a plastic razor it will have to manufacture blades for the same. For a simple
reason that any other company cartridge will not fit into the inkjet printer and neither will any
other companies blade fit into the plastic razor. The consumer has no other option but to buy the
complementary products from of the same company. This increases the sales and the profit
margin of the company anyways.

7. Pricing for promotions

Promotional pricing is very common these days. You will find it almost everywhere. Pricing for
promoting a product is another very useful and helpful strategy. These promotion offers can
include, discount offers, gift or money coupons or vouchers, buy one and get one free, etc. to
promote new and even existing products companies do adopt such strategies where they roll out
these offers to promote their products. An old strategy yet it is one of the most successful pricing
strategies till date. Reason of its success is that the consumer considers buying the product and
service for the offer that the consumer receives.

8. Pricing as Per Geographic Locations

For simple reasons such as the geographic location the companies do vary or change the price of
the product. Why does location of the market affect the price of the product? The reasons can be
many well some are scarcity of the product or the raw material of the product, the shipping cost
of the product, taxes differ in a few countries, difference in the currency rate for products, etc.

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Let’s take a few pricing strategies examples, when a few fruits are not available in a country they
are imported from another country, these fruits are exotic fruits, they are also scarce this
increases their value in the country they are imported to, scarcity, the shipping cost of the
imported product along with its quality increase its price, where as it is much cheaper where it is
originally grown. Similarly the government implies heavy taxes on a few products such as petrol
or petroleum products and alcohol to increase their revenue; hence such products are expensive
in a few countries or part of the country compared to the other parts. Geographic location does
create a huge impact on the pricing strategy of a product as the company has to consider every
aspect before they price a product. Hence the price needs to be perfect and appropriate.

9. Value Pricing a Product

Let me first be clear about what value pricing means, value pricing is reducing the price of a
product due to external factors that can affect the sales of the product for example competition
and recession; value pricing does not mean that the company has added something or increased
the value of a product. When the company is afraid of factors such as competition or recession
affecting their sales and profits the company considers value pricing.

For example McDonalds the famous food chain has started value meals for their consumer since
they have started facing competition with other fast food chains. They offer a meal or a
combination of a few products as a lower price where the consumer feels emotionally content
and continues to buy their products.

10. Pricing of Premium Products

Well this strategy works just the other way round. Premium products are priced higher due to
their unique branding approach. A high price for premium products is an extensive competitive
advantage to the manufacturer as the high price for these products assures them that they are safe
in the market due to their relatively high price. Premium pricing can be charged for products and
services such as precious jewelry, precious stones, luxurious services, cruses, luxurious hotel
rooms, business air travel, etc. The higher the cost the more will be the value of the product
amongst that class of audience.

Conclusion

Lets us conclude by summarizing. Pricing completely depends on the 4P pricing strategy in

marketing which is very important and it needs to be considered before pricing any product. The
management of the company needs to price their products and services very effectively as they
do not want to enter into any situation where their sales take a hit due to relatively high price
when compared with their competitors, neither would the company want to keep a price too low
to maximize profits or enter into losses. Hence pricing needs to be done very smartly and
effectively making sure the management of the organization considers every aspect before they
price a product.

Recommended Articles

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Here are some articles that will help you to get more detail about the Pricing Strategies in
Marketing so just go through the link.

1. Strategic Marketing vs Tactical Marketing

2. Service Marketing vs Product Marketing
3. Digital Marketing Planning
4. Market Segmentation Benefits

ances.

The 8 Steps of a Product Development Process

By now we all know, there is no better way around– than a structured, systematic, value-driven
product development process for growth and improvement of new products. In this section, we
will dig into 8 major steps in a product development process:

Step 1: Ideation and concept

The very first step is to define an initial concept for the product. Also, called idea generation, it’s
the systematic search for new-product ideas and concepts. Typically, a business generates
hundreds of ideas, to find a handful of good ones in the end. Sources of new ideas can be:

 Discussions with a development team,

 A piece of information available in the market, or
 Through a statistical occurrence discovered.

You will have to describe the concept or idea on a document for presentation and approval.

Step 2: Product research and validation

With the right product concept in mind, you may want to take a leap ahead to the production, but
this can become a misstep if you fail to validate your idea first.

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Product validation & research ensures you’re developing a product that people will pay for, and
that you won’t waste money, time, or effort on an idea that will not sell. There are many ways
you can validate your product ideas and do research, including:

 Sending out an online survey to get feedback

 Starting a crowdfunding campaign
 Asking for feedback on online forums like Reddit or quora
 Researching online demand

Step 3: Business plan

The economic parameters of a product launch are significant. Hence, you need a full-fledged
business plan for a product, it will encompass all of the economic elements involved
in developing and marketing the product. A business plan will help you analyze all of the
investments during product development and subsequently establish variables for a sales
pipeline and related costs post-launch.

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Read more: What is a Product Requirements Document & How to Create One Effectively?

Step 4: Prototype

The purpose of a prototyping step during a product development process is to build a preliminary
product to test product design, validate usage hypotheses, show investors, and use for marketing
purposes. In some cases, your prototype will either be a physical or a digital product. Once you
get to this phase, your product is starting to take form.

Step 5: Testing

Once you are done with prototyping of your product, it’s time to test it with prospective
customers. This can be achieved by testing it with existing prospects or through formal-informal
focus groups. Your testing must generate genuine feedback and answer the following questions:

 What they like or dislike about the product,

 Where do they feel your products need improvement, and
 Is the price point of your product competitive?

Step 6: Costing

By now, you probably have a clear vision of the cost to build your product.

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Costing is the stage of taking all of the data collected so far, and adding everything up to your
cost of goods sold (COGS) so that you can determine your gross margin and retail price. These
costs include all of your manufacturing costs, raw materials, factory set up costs, and shipping
costs.

Step 7: Designing

Now, that your prototype is ready, together with your costing, it’s time to write the technical
specifications associated with the design phase. Depending on the type of product you want to
create and launch in the market, you may need to work with external designers to provide the
design specifications required for the manufacturing of your final product.

Step 8: Marketing and distribution

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Getting marketing and sales right for a new product is one of the hardest steps in this entire
product development process. It’s an ultimate task in the product launch phase, and cannot
happen without a go-to-market and distribution strategy.

What are Best Practices for Your Product Development

Process?
Although their development approaches may vary, most businesses that constantly deliver
successful products share certain practices. Here are some of these best practices that you can
follow while creating a product development process:

 Start with your customers’ problems and demands in mind.

 Use market research and your own customer feedback.
 Have regular communication across your company. Maintain transparency, share
knowledge, and insights!
 Work with one of the available frameworks for your product development process. Don’t
try to develop without a system in place.
 Validate your product idea as early in the process as possible. This might include testing
the product concept with a small group of early developers.
 Set realistic development goals and timelines.
 Focus only on ideas your organization has both the resources and the expertise to
execute.

From an Idea to a Viable Product!

Your product will go through hundreds of evolutions from an idea to the final launch. Each stage
of the product development process will play a significant part in its success! Whatever your
product is, make sure you are seeking market insights at every step.

No matter what you’re developing, by putting in all the necessary efforts into preparation—
through ideation, researching, planning, prototyping, designing, costing, and distribution—you
can set yourself up for a successful final product!

Further reads:

 Top 5 Business Process Management (BPM) Tools

 Software Product Development: A Comprehensive Guide
 Product-Market Fit: What is it & How to Achieve it?
 Implementation Plan: What is it & How to Create it?
 Product Planning: What, Why, and How!

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  Operations Manual: What is it & How to Write it?
 Top SaaS Products for Small Businesses in 2021
 How to Create an Agile Product Roadmap?
 How to Create a Strategic Process Improvement Plan?
 How To Create A Sales Process Docu

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