Pricing

To sell a product for a particular price, value must be created. Value is the consumer’s estimate of the product’s overall capacity to satisfy his/her needs. When the value placed on a product or service is high, then satisfaction is achieved. Consumers are savvy and will choose based on the level of satisfaction that corresponds with the price. If a bottle of Coca-Cola were priced at $5 while a liter of Pepsi-Cola was priced at $1, it is likely that the sales of Coke would decrease. If these were the only two options at the supermarket, the likelihood of Pepsi sales increasing is high. Pricing is what your customer is willing to trade in return for a product—that is, the value they place on a product or service. Generally, a “price/quality” relationship exists, where the higher the price, the higher the quality; especially in the case of personal services, consumers will expect a higher level of service if the fee associated with that service is higher relative to other providers of similar services.

Marketers may elect to skim the market with a relatively high price at first, and then, as demand wanes at this relatively high price, gradually lower the price. New, innovative products often use this pricing strategy because their newness and uniqueness may enable a higher price at first. As copycats and competitors enter the market, prices will fall to meet the market price.

Some marketers, though, may use a penetration strategy, where the product or service is offered at a very low price, in order to quickly grab market share and be considered the low price provider. WalMart is an example of a company using a penetration pricing strategy. Pricing is a powerful tool in developing a marketing strategy with a strong connection to the financial condition of the organization. Pricing too low may result in economic consequences if costs are not covered, and pricing too high may stunt demand and sales of the product or service, also resulting in adverse economic consequences.