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From this article you will learn:

• What factors influence the choice of pricing strategy
• What elements does a pricing strategy consist of?
• What are the main pricing strategies of the company?
• What are the stages of forming a pricing strategy?
• What are the typical mistakes companies make when choosing and developing a pricing strategy?

A productive pricing strategy for an enterprise and the creation of conditions that determine the cost of products is probably the most important method used to increase the competitiveness of a trading company. It is cost that determines product competition in terms of pricing. First, the salesperson needs to formulate key performance indicators based on his intentions to achieve those goals. Next, tasks are distributed that help build a pricing policy. A competent strategy makes it possible to resolve these issues with maximum productivity.

What are pricing strategies?

Pricing strategy- potential level, direction, speed and frequency of changes in pricing based on the market goals of the trading enterprise.

Pricing is a labor-intensive process, because To set an adequate competitive price, you need to take into account various aspects: the cost of the product, the marketing mix and its positioning, the life cycle of the product, the activities of competitors, the nature of consumer demand, the economic and political foundations of the country.

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1. Product cost. This term refers to the totality of variable and fixed expenses of a company to create 1 unit of goods. The price and the formation of a pricing strategy largely depend on costs. The sales price must be higher than the cost price to make a profit.
2. Marketing mix. Pricing needs to be based on the market, the target buyer and the distribution channels where the seller plans to sell the products.
3. Positioning. Pricing a product helps in creating its adequate image: luxury, mass market, economy segment.
4. Product life cycle. Each item in the product life cycle has its own pricing strategy stages. This is due to the different focus at each stage.
5. The company's goals when releasing a product. This includes data on the planned profit from the product (profitability target) and the company's goals within the market.
6. Competitors' prices. Product pricing is always based on competitors' prices and price clusters existing in the market.
7. Level of competition in the market. If we are talking about a monopoly system, then it is possible to slightly increase the cost. A freely competitive market helps level out the price range of similar products.
8. Forecast of competitors' actions. When choosing a plan, you should make a forecast of the results of such a pricing strategy in order to avoid an unfavorable price war for anyone.
9. Buyers' price perception. Pricing should be determined by the consumer's image and his vision of the price of the product: too low a price is often perceived as an indicator of poor quality, and an overpriced product may not find its buyer.
10. Elasticity demand. The demand curve illustrates the dependence of the quantity of production on its cost, i.e. how much the consumer or target audience wants to purchase if the cost of the product is different.
11. State of the economy. The economic crisis contributes to greater activity in the economy segment of the market, and buyers are more attentive to the cost of goods.
12. Legal norms on the market. This is the name given to legal rules that prohibit price discrimination or fix the maximum possible cost of any goods.

The main elements of a company's pricing strategy

The marketing definition of product pricing strategy should consist of the following:

1. Product starting price

This is the price of the product that the company declares when entering the market. Primary pricing has a fundamental strategic move: firstly, it is the “starting point” on which the determining success and creation of a fair image of the product depend; second, the initial price creates the firm's long-term profit potential.

1. Profitability rate

The pricing strategy should establish two standards for the profitability of a product: a target indicator of its profitability (needed to determine the budget for promoting sales profits) and a minimum level of profitability, which fixes discount percentages.

1. Break even

An extremely low price for a product, falling below which the company will go into the red.

1. Price development plan

For any product, price is fundamentally important. The pricing strategy focuses on the general vector (movement) of product costs, securing the price positioning of the product (in comparison with its main competitors).

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1. Price growth strategy

This pricing determines the possible number of increases in the price of a product per year and the nature of these jumps: a uniform or differentiated increase in prices within the range (depending on the product group), a correlation between price increases and the inflation rate (equal to, above or below it).

1. Prices in distribution channels

The competitive pricing strategy determines the setting of prices based on all channels of distribution of goods (are prices the same for all sales channels).

1. Pricing policy

Makes it possible to establish methods of contact with wholesalers or VIP clients, adjusts the cost based on data on the volume of product purchases.

1. Discount strategy

The discount strategy and cost reduction strategy set the boundaries, size, extent and seasonality of discount provision in different market segments.

Basic pricing strategies depending on the company's goals

Pricing strategic choice- this is a specification of pricing strategies in different sales segments; the basis of such a choice is knowledge of the company’s operating priorities.

The company's pricing policy and strategy are determined by goals and consumers, the relationship of which is reflected below:

Buyer characteristics	Purpose of the company
	Differentiation of prices by buyer groups	Taking advantage of competitive position	Pricing depending on assortment
Some buyers have high search costs	“Random” discount strategy
A certain number of buyers have a low assessment of the usefulness of the product		Market penetration and learning curve strategies	Strategies for “set” and “above par” pricing
Some buyers have specific transaction costs

Competitive Pricing Strategies

Let's take into account the company's competitiveness in terms of pricing. Let's demonstrate competitive pricing strategies:

• Price Signaling Strategy is interesting to buyers who are not aware of competitive products, but are confident that quality is one of the key purchasing criteria. The popularity of products with low cost and not the best quality is an example of this pricing strategy.
• Market penetration strategy occurs when a firm increases production, promoting savings. This strategy is effective when introducing new products.
• Learning Curve Pricing Strategy takes into account the positive aspects of the experience gained and low costs compared to competitors. The basis of the pricing strategy is that customers who buy a product early in the business cycle save money (compared to those who buy later).
• Geographic pricing strategy- this is competitive pricing for related parts of the market (in other countries FOB - free departure station).

Assortment pricing strategies

When a firm's product mix includes similar, related, or interchangeable products, it is advantageous for it to employ these types of pricing strategies. Assortment pricing assumes the existence of the following strategies:

• “Bundle” pricing strategy, which is based on the comparable price effect: buying goods together (in bulk) is cheaper, since their price is lower. The reason for using the strategy is the uneven demand for non-fungible goods. Similar pricing schemes are reflected in the sale of season tickets, in the pricing of set meals in the menu of restaurants or cafes, sets of equipment and parts for machines.
• “Bundle” pricing strategy, which is based on customer evaluation of products.
• “Above par” pricing strategy comes from the company's uneven demand for interchangeable goods, which can lead to additional income by increasing production.
• "Image" pricing strategy is relevant if customers evaluate the quality of a product, having an idea of ​​the cost of goods that are similar in quality and scope of application.

Differential Pricing Strategies

Market pricing strategies are based on the idea of ​​customer heterogeneity and charging different prices for one product. Differentiated pricing involves strategies such as:

• Discount strategy in the secondary market, where the specificity of costs (variable and fixed) under the contract leads to the introduction of such a profitable pricing strategy for companies. In the drug industry, new drugs often must compete with lower-priced but off-patent drugs. The company needs to determine for itself what is more significant for it: fix a high cost, while losing a considerable percentage of customers, or reduce the cost, but suffer losses from the price difference. With the second option, the sales market may remain the same, or may expand. The pricing strategy is differentiated pricing for drugs with or without patent, plus it is a strategy of discounts in the secondary market and in some market segments for consumer groups.
• Periodic discount strategy, which is based on an understanding of the nuances of the demand of consumer groups, is used during periodic reductions in the cost of popular goods or tariffs for tourists in the off-season, prices for events taking place during the day, when setting tariffs for utility bills at times of acute load. When a model in a firm's product line becomes obsolete, it needs to be downgraded. This pricing strategy is relevant and effective. We can also talk about a situation where some part of buyers is ready to purchase an updated product even at a very high price, because it was given a positive assessment. This pricing strategy allows you to build a forecast of potential price reductions known to the buyer.
• Strategy of “random” discounts (“random” reduction) exists to increase the number of customers who are aware and unaware of the low price. The firm analyzes the search costs that motivate the random discount. When search costs are heterogeneous, this pricing strategy is productive and allows companies to attract informed customers through discount prices.

What are the stages of choosing a pricing strategy?

The company’s pricing in each of its strategic business zones (SZH) is formed at the following stages:

Stage 1. General research of the agricultural sector, forecasting market conditions

Here it is necessary to evaluate one's own production capabilities and distribute goods according to levels such as a commercial assessment of the needs underlying the goods, an assessment of market capacity, the competitive environment, government policies and sales conditions, as well as the goods produced by the company.

Stage 2. Determining the market model from the point of view of its competitiveness

A company operating in imperfectly competitive markets periodically makes decisions to adjust its pricing strategy. This happens in cases where:

• the company sets a price for the first time (new product, new sales channels, entry into a new market);
• need to attract new clients;
• competitors' prices begin to change;
• a company produces a group of products that are interrelated with each other in terms of demand or cost.

Stage 3. Determining the product life cycle

• at the implementation stage low or high price strategies are applied to the product;
• at the growth stage high price policy is allowed;
• at the maturity stage the market segment should be expanded;
• at the stage of decline low price strategy prevails.

We should not forget about such parameters as changes in technology, product design, and possible changes in the market model.

Stage 4. Determining the general goals of the company in a given market segment or agricultural sector

Fundamentally important goals of a pricing strategy:

Goal 1. Providing sales

When a company is in a situation of great competition, when the market is saturated with similar products, then this goal can be achieved by deliberately reducing and fixing the penetration price. Such actions in the pricing strategy make sense if:

• buyers' price demand is elastic;
• the company strives for the maximum possible sales volume and an increase in overall profit by reducing costs per unit of goods;
• there is a large consumer market.

Goal 2. Maximize profit

This goal can be explained in the following ways:

• The company wants to have stable profits for a certain number of years. These goals are usually set by stable companies or, conversely, by companies that do not have complete confidence in how events will develop in the future, but that want to wisely use a convenient set of circumstances.
• Establish a stable income based on average profit rates.
• Increase prices and profits through increased investment.

Goal 3. Market retention

This goal is noteworthy if the company seeks to maintain and consolidate its current position in the market. In this case, she carefully monitors price increases and decreases and the state of affairs regarding sales. The company will not allow the price of goods to rise or fall too much and will try to reduce production and distribution costs.

Stage 5. Choosing the company's pricing policy

Pricing policy and pricing options:

• Entering a new market is often associated with a reduction in prices compared to prices in already developed markets and to the prices of competitors. It is important to remember the consequences of lower returns.
• Introducing a new product means setting an extremely high price, which guarantees a profit margin that exceeds the industry average cost. The goal of this option is to maximize profits before the new market becomes subject to competition.
• Position protection is methods and strategies of pricing in competition that are associated with maintaining a certain market share: price, technical level of the product, delivery time, terms of payment, warranty, service, advertising, etc., increasing the consumer properties of products while maintaining or slightly increasing prices for sale.
• Sequential passage through market segments: first – “skimming of the cream”, then – the greater the elasticity of demand of the segments, the lower the prices for them.
• Quick cost recovery is when a company offers products at fairly affordable prices without guaranteeing the long-term commercial success of their products. This will allow sales on a large scale.
• Satisfactory cost recovery, “target” price strategy: over 1-2 years, with optimal capacity utilization, target prices reimburse costs and the estimated profit on invested capital.
• Stimulating complex sales is the approval of a low price for one basic product from a set, which makes it possible to sell the entire set.
• Price discrimination is when one product at different points and at different times of sale has a completely different price (in a more prestigious boutique the product may cost more, or in a certain season the price can rise high).
• Following the leader, where pricing strategies rely on formal or informal agreement between producers, is typical of oligopolies.

Stage 6. Research of factors influencing the level of sales price:

• law of demand, price elasticity, market segmentation;
• direct and indirect methods of price regulation by the state;
• prices for competing products, substitute products, competitors’ pricing policies, etc.;
• functional cost analysis of costs, clarification of production prices and consumption prices.

Stage 7. Acceptance of the basic price level and determination of the rational dynamics of its change

The lower price limit is determined by the production price, and the upper limit is determined by the effect received by the buyer in the sphere of consumption.

Real market conditions, as a rule, fix pricing strategies in marketing and in each specific organization:

1. Modification of prices according to geographical principle:

• the company's selling price at the place of production - the costs of delivering goods to the consumer's location, which are paid by the client;
• general price - a single price for all groups of consumers, it also includes costs at an average rate;
• zonal prices;
• freight basis prices, when the seller determines the base location, and each customer pays associated costs to the selling price based on the freight basis location to the location of each buyer, regardless of the actual location of the goods;
• full or partial payment of freight costs at the expense of the manufacturing company is a case when the method of competitive struggle is used to enter new markets, or as a strategy for maintaining positions with an increasing level of competition;
• franking system – a comprehensive application of different options for including transport costs in the manufacturer’s price.

2. Modification of prices through a system of discounts:

• discount – a discount for early payment or cash payment, which helps increase the turnover of funds;
• Wholesale discounts are welcome in the following cases: the larger the purchase, the lower the cost of the product (within the limits established by the company);
• functional discounts (trade) - they are received by companies included in the sales network of the manufacturing company, they provide storage, accounting of commodity flows and sales of goods;
• seasonal discounts - discounts established during the absence of primary demand to guarantee sustainability and uniformity of production throughout the year;
• gifts, providing a discount equal to the price of similar old goods handed over by the client, etc.

3. Modification of prices to stimulate sales:

• bait price is most often used in retail trade;
• premiums (compensations) - cash payments to the final buyer who purchased the product in retail by the manufacturing company (for example, the buyer sent a coupon);
• low interest rates when selling on credit;
• warranty maintenance (free or on preferential terms);
• psychological modification of prices - offering a product at a lower price than the sample, using a strategy of unrounded prices.

4. Price lines

Used in the production of product lines, i.e. models of one product, each of which has its own performance characteristics. The more complex the line model, the higher its price; this is determined by higher production costs. Here you need to make 2 decisions: determine the price range of the company’s offer (upper and lower limits) and fix the final price values ​​taking into account the limits.

In the process of developing a pricing strategy, it is worth taking into account such factors of the pricing strategy as:

• consumers must see qualitative differences between products, so prices must be sufficiently different from each other;
• the cost is divided in the upper range, since as the price falls, the elasticity of consumer demand decreases;
• even if costs have changed, price ratios must be maintained and clear differences maintained.

Modern Pricing Strategies That Will Significantly Increase Your Sales

If the choice is limited, then buyers do not develop “action paralysis”, and the more options a buyer has, the less he will want to buy something.

Let us conclude that the same prices for some goods/services increase the consumer’s concentration, which will ultimately lead him to purchase.

But this conclusion is not correct.

A Yale University study based on experimental studies found that even a small difference in the cost of two products is more likely to guarantee a buyer's purchase than an equal price.

Scientists conducted the following experiment: The store sold two brands of chewing gum, the price for each of them was 60 cents. Only 46% of buyers chose one of those chewing gums, the rest bought chewing gum from a different brand or completely ignored this offer.

The next experiment was that the price between the same gum differed by 2 cents, and more than 77% of buyers chose one of the packages.

This is not about identical jeans in different shades having different prices. It is necessary to take into account the psychological aspect and motivation for making purchases: when identical products cost the same, the client most likely will not buy anything from you.

Pricing strategy 2. Using the anchor effect

The chance of selling a $2,500 watch will increase the liking of about a $35,000 watch!

This statement can be explained by the so-called binding effect or “anchor effect” - a feature of evaluating numbers when the consumer’s decision is based on the initially obtained data. A $2,500 watch isn't that expensive when compared to a $35,000 watch.

At the same time, the client will regard the same watch as expensive if he puts a $49 Timex next to it.

A similar strategy is used by restaurants: the chef's special dish (usually the most expensive) is often placed on their menu page or in the header (in the header of an Internet resource) and immediately catches the eye.

And when the client then sees the cost of toast at $8, that price no longer seems exaggerated.

The "anchor effect" in pricing strategies was studied by researchers at Harvard Business School. They also conducted an experiment analyzing the price of a certain number of houses being sold. The brochures designed for study participants contained key information about nearby buildings: some were priced at market averages, while others had specially increased prices.

During the experiment, it became clear that not only potential buyers, but also professional realtors made conclusions based on unrealistically high prices.

Pricing Strategy 3. Secrets of Weber's Law

The existing Weber principle (in some sources - Weber-Fechner) states that the difference between two sensations (stimuli) is directly proportional to the strength of the stimulus. In other words, we perceive the ratio of the difference to the strength of the stimulus, although it would be more productive to compare the difference between the effects obtained from 2 different factors.

Weber's Law often works in marketing. If this principle is adequately implemented in the pricing strategy, it will make it possible to increase prices for goods by about 10% without suspicion or complaints from the buyer.

This rule should be taken as advice for testing product prices, and not as a pricing rule, because pricing policy depends on many conditions: supply/demand, company reputation, favorable consumer disposition towards the company’s products, etc.

Pricing strategy 4. Reducing the “pain of payment” in the sales process

According to the work of neuroeconomists, the human brain operates according to a pattern where people spend money until the feeling of “pain of paying” arises.

An experiment at Carnegie Mellon University found methods to minimize the number of such “pain points” during shopping. The most interesting:

• Reframe your value proposition. A buyer can more easily assess the price-benefit correlation when purchasing a $75 monthly subscription than a $900 annual subscription.
• Use the package. Neuroeconomist D. Loewenstein calls Lexus's LX a prime example of a productive package. It is much easier to see the possible advantages of a set of complementary products (that complement each other) than to think about buying good covers, finding a navigation system and not wasting all your savings when buying them.
• Use the little things. Everyone knows the proverb: “The devil is in the details.” The CD store changed the sign “$6 Advance” to “Small $6 Advance”, which increased sales by 20%.
• Appeal to utility or pleasure. Conservative buyers will appreciate advertising about the benefits of purchasing a product: “Our massage will reduce neck pain.” Clients who try to think without stereotypes will be more attracted by the pleasure factor of consumption: “Our massage will reduce stress.”
• Either free or paid.“Free” is an effective adverb that works like Dr. Cialdini’s “click and buzz” principle. Dan Ariely wrote about this extensively in his bestselling book Predictably Irrational. Here's an example from this book: Amazon's sales in France were significantly lower than the average sales in the rest of Europe. The problem was that delivery there was paid - 20 cents, in other countries delivery was carried out, so to speak, for nothing.

Pricing Strategy 5: Test Old Classics

The non-rounded price policy (eg $7.99) is an old pricing method. Let's take a closer look at the effectiveness of this method:

The American journal Quantitative Marketing and Economics agrees with the effectiveness of this method: prices that end in nine often bring more profit than even lower prices.

If, for example, prices for women's clothing are set at $34 and $39, then, following the results of the experiment, a price with a nine will increase sales volumes by 24%.

Let's give another example: There is a product for $60. During the discount season, its price will be $15. The ad says, "Was $60 - Now only $45!" Quite a good offer. If you compare this ad with “It was $60 - now only 49!”, Believe me, in such a situation the buyer will almost certainly choose the option with the number 49.

Pricing Strategy 6. Focus on Time Spent vs. Savings

Miller Lite's slogan "It's Miller Time!" (“Time for Miller!”) does not seem to include any possible benefit to the client.

However, research by Jennifer Aaker, a professor of marketing at Stanford, shows that what customers remember for the long term is not the amount of money they save on a purchase, but the time spent with that product.

The consumer experience that he has after contact with any product leads to a feeling of personal commitment to this product: the longer the contact, the more positive the buyer’s attitude towards it. In addition, this experience influences the increase in sales volumes.

Pricing Strategy 7. Never Compare Prices Without a Good Reason

Stanford University conducted an experiment in which the following rule was established: if there is no real reason to compare your company's prices with those of a competitor, do not do it, otherwise the client may react unpredictably.

There is a risk of losing customer trust in the company if you ask them questions about how your prices compare to other prices. This will certainly raise suspicions that the company that asked the questions has deceived them in some way.

Pricing Strategy 8: Harness the Power of Context

For more than half a century, there has been a dispute between the Czech company Budweiser and the American Anheuser-Busch over the ownership of the popular Budweiser beer brand. No one doubts that the price of this beer should be the same at any point.

But the New York Times Magazine reported one study showing that shoppers are willing to pay a higher price for the same product if they know it comes from a high-end hotel rather than a small supermarket.

Economist Richard Thaler emphasizes that the immediate situation is important here, and this is a strong lever of influence. The hotel's high rating gave him carte blanche to increase the price of Budweiser.

This may also explain why, when choosing between an e-book and a multimedia course, if they contain the same information but the course costs more, the client will probably purchase the course rather than the book. The high cost of your products must be justified by subtle signals that need to be sent to potential customers (attractive content, social rationale, etc.).

Pricing Strategy 9. Test different price levels

William Poundstone, author of the bestselling book Priceless: The Myth of Fair Value, argues that a lack of price variety has a significant impact on sales. In the book, he evaluates consumer behavior patterns when choosing beer.

Experiment No. 1. The client has 2 drinks: regular and first-class beer with the following prices:

• $1.8 – 20%;
• $2.5 – 80%.

In this option, 4 out of 5 customers chose the higher quality beer.

Experiment No. 2. Beer was added to the first two options for $1.60. This made it possible to expand the target audience, as more people wanted to buy cheaper beer.

• $1.6 – 0%;
• $1.8 – 80%;
• $2.5 – 20%.

But the cheapest beer was never purchased. Consumers also chose beer for $1.8 or $2.5. At the same time, a revaluation occurred, and the beer, which in the first case attracted only 20% of customers, was now chosen by 80% of customers.

Experiment No. 3. Instead of the cheapest option, they put a $3.40 beer on the counter.

• $1.8 – 5%;
• $2.5 – 85%;
• $3.4 – 10%.

Bottom line: beer priced at $2.50 was chosen by 85% of consumers, and this strategy became the most profitable of all proposed ones.

The examples shown indicate that any company’s pricing strategy must be tested: for some, product quality is important, for others – the brand, and for others, an adequate price is necessary. Therefore, to establish the ideal option for all groups, each strategy must be regularly tested in practice.

Pricing Strategy 10. Keep prices as simple as possible.

This is the simplest theory about pricing in economics.

Data from experiments in the field of behavioral economics show that the more signs a buyer sees on a price tag, the higher they seem to him.

The following price tags were shown to consumers:

• $1,499.00;
• $1,499;
• $1499.

The $1,499.00 and $1,499 options were perceived as very expensive.

Therefore, your task is to make sure that the price structure for your product is as simple as possible.

DEFINITION

Strategy is a set of long-term and agreed upon provisions determined during the formation of the market price.

Pricing strategies are designed to serve the interests of sales. Basically, established strategies are adopted during critical decisions that have long-term consequences for the improvement and functioning of the company.

Pricing tactics are a system of specific tactical measures that are aimed at managing prices and products for short-term periods. Pricing strategies are a model of enterprise behavior planned for a long period, the main goal of which is the successful sale of products or services. Pricing strategies are implemented through the choice of price order and also include other decisions.

Pricing strategy and its types

There are several types of pricing strategies:

1. traditional pricing strategies
2. assortment pricing strategies,
3. differentiated pricing,
4. competitive pricing.

The main elements of pricing strategies are pricing tactics and pricing policy. Pricing tactics include certain actions that relate to short-term periods of time. Tactics are aimed at summing up the cost of products or services. Tactics are carried out using certain actions, including discounts and premium promotions. They are able to control customer behavior and change the cost of goods. At the same time, the main goal of pricing tactics is to achieve the planned results.

Pricing policy includes several measures in the sphere of formation of product costs; the policy forms a strategy and is characterized by use in long-term periods of time. Pricing policy and tactics play a major role in creating a pricing strategy.

High Price Strategy

The strategy of high prices is to achieve greater profits for the enterprise. This generation of excess profits is called a skimming strategy. Skimming pricing strategies gain revenue from buyers for whom the new product has the greatest value, and for this reason buyers are willing to pay a higher price.

The high price strategy is used to convince a company that there is demand for an expensive product. High price pricing strategies are typical for market situations when products that have no analogues or are protected by patents are sold. This strategy is also typical for low elasticity of demand, when demand is stable, and there are market segments for which demand does not depend on price dynamics. The strategy is also used when competition is limited.

Mid-price strategy

Mid-price strategies represent neutral pricing that applies to all phases of the life cycle. This strategy is inherent in most businesses that view profit as a long-term policy.

According to many entrepreneurs, the average pricing strategy is the fairest pricing strategy. In this case, price wars are eliminated; they do not allow enterprises to profit at the expense of consumers. The average price strategy does not lead to the emergence of new competition, allowing you to get a fair return on the funds contributed (investments).

Low Price Strategy

Low price pricing strategies are called price breakout strategies. The use of these strategies is possible at any stage of the product life cycle. A low-price strategy is particularly effective if demand is price elastic.

The use of a low-price strategy is envisaged for several cases: market penetration, increasing the share of products or a displacement policy. Also, the use of a low-price strategy will be appropriate when, per unit of goods, costs are reduced as sales volume increases. In this case, low prices encourage competitors to develop a similar product, since the previous one produces low profits. This is done to prevent bankruptcy.

There are different types of pricing strategies in marketing, the main ones are as follows.

High Price Strategy ("skimming"), provides for the sale of goods initially at high prices, significantly higher than the production price, and then their gradual reduction. It is typical for the sale of new products protected by patents at the introduction stage, when the company first releases an expensive version of the product, and then begins to attract more and more new market segments, offering buyers of various segment groups simpler and cheaper models.

As a rule, such a policy is possible if the product is new, high-quality, has a number of attractive, distinctive features for the consumer who is willing to pay a high price for its purchase, and is designed mainly for innovative consumers.

Using the method of “skimming the cream” from the market makes sense under the following conditions: 1) there is a high and increasing level of current demand from a sufficiently large number of buyers; 2) production costs make it possible to maintain efficient production output, and financial results contribute to increasing the production of a new product and its supply on the market; 3) a high initial price does not attract new competitors in the production of goods; 4) a high price corresponds to the high quality of the product and does not interfere with attracting new customers.

This type of strategy is becoming increasingly widespread in the market and practically prevails. It is especially actively used when there is a slight excess of demand over supply in the market and the company occupies a monopoly position in the production of a new product. This strategy is acceptable under conditions of low elasticity of demand, when the market reacts passively or does not react at all to lower prices or to their low level, as well as when the efficiency of large-scale production is low.

Low price strategy, or strategy of “penetration”, “breakthrough” into the market, involves the initial sale of off-patent products at low prices in order to stimulate demand, beat competition, drive competing products out of the market, and gain a mass market and significant market share.

The firm achieves success in the market, displaces competitors, achieves a certain monopoly position during the growth stage, and then raises prices for its goods. However, it is currently very difficult to use such a policy as a pricing strategy. It is practically extremely difficult for a company to secure a monopoly position in the market. A low price strategy is not appropriate for markets with low elasticity of demand. It is effective in markets with large production volumes and high elasticity of demand, when the buyer is sensitive to low prices and sharply increases the volume of purchases. In this case, it is actually very difficult to increase prices, since this circumstance causes a negative reaction in the buyer, he is extremely reluctant to increase the price and, most often, may refuse to conclude a deal.

Therefore, marketers recommend using a modified form of this type of strategy: low prices allow the company to “break through” into the market, stimulating sales growth, but in the future they do not increase, but remain at the same low level and even decline.

A low price level when a product enters the market may be due to the following circumstances:

• · market sensitivity to prices and high elasticity of demand;
• · unattractiveness of low prices for active and potential competitors;
• · reduction of production and distribution costs as production and sales volumes of a given product increase.

Prices can be increased quite unnoticed by consumers by canceling discounts or introducing expensive goods into the product range.

You can raise prices if you have a large, established market, whose buyers are interested in purchasing the goods of a particular company and have high “loyalty” to its brand, as well as in the event of corresponding changes in the economic and marketing environment, for example, when there is a general increase in wholesale prices and retail prices, inflation processes, the introduction of export duties, etc.

Differential pricing strategy is actively used in the trading practice of companies that establish a certain scale of possible discounts and surcharges to the average price level for various markets, their segments and buyers: taking into account the types of buyers, the location of the market and its characteristics, the time of purchase, product options and their modifications.

The differentiated pricing strategy provides for seasonal discounts, quantity discounts, discounts for regular partners, etc.; establishing different price levels and their ratios for various goods in the general range of manufactured products, as well as for each modification, representing a very complex and painstaking work to harmonize the general product, market and pricing policy.

The differentiated pricing strategy is preferable if a number of conditions are met:

• · easily segmented market;
• · the presence of clear boundaries of market segments and high intensity of demand;
• · impossibility of resale of goods from segments with low prices to segments with high prices;
• · the impossibility of competitors selling goods at low prices in segments in which the company sells goods at high prices;
• · taking into account the perception of buyers of differentiated prices to prevent reactions of resentment and hostility;
• · consistency of the chosen differentiated form of pricing with the relevant legislation;
• · covering additional costs of implementing a differentiated pricing strategy with the amount of additional revenues as a result of its implementation.

The differentiated pricing strategy allows you to “encourage” or “punish” different buyers, stimulate or somewhat restrain the sales of various goods in different markets. Its specific varieties are the preferential price strategy and the discriminatory price strategy.

Preferential pricing strategy. Preferential prices are established for goods and for buyers in which the selling company has a certain interest. In addition, the policy of preferential prices can be carried out as a temporary measure to stimulate sales, for example, to attract buyers to sales.

Preferential prices are the lowest prices at which a company sells its goods. As a rule, they are set below production costs and in this sense may constitute dumping prices. They are used to stimulate sales for regular customers, to undermine weak competitors through price competition, and also, if necessary, to clear warehouse space of stale goods, etc.

Discriminatory pricing strategy. Discriminatory prices are part of a firm's overall pricing strategy for certain market segments and are set at the highest level used to sell a given product. They are used in relation to incompetent buyers who are not oriented in the market situation, to buyers who show extreme interest in purchasing this product, to buyers who are undesirable for the selling company, as well as when pursuing a policy of price cartelization, i.e. concluding various types of price agreements between firms.

Such a strategy is possible when the government pursues a general discriminatory policy towards the country in which the purchasing company operates: establishing high import or export duties, establishing a mandatory rule for using the services of a local intermediary, etc.

Single Price Strategy, or establishing a single price for all consumers. This strategy strengthens consumer confidence, is easy to apply, convenient, does not require bargaining, and makes catalog sales and mail order possible. However, the single price strategy is not used so often in pricing practice and, as a rule, is limited by time, geographic and product boundaries.

Flexible, elastic pricing strategy provides for changes in the level of sales prices depending on the buyer’s ability to bargain and his purchasing power. Flexible prices, as a rule, are used when concluding individual transactions for each batch of heterogeneous goods, for example, for industrial goods, durable goods, etc.

Strategy of stable, standard, unchanged prices involves the sale of goods at constant prices over a long period. It is typical for mass sales of, as a rule, homogeneous goods for which a large number of competing firms are on the market, for example prices for transport, candy, magazines, etc. In this case, regardless of the place of sale, for quite a long time the goods are sold to any buyer at the same price.

Strategy of unstable, changing prices provides for the dependence of prices on the market situation, consumer demand or production and sales costs of the company itself. The firm sets different price levels for different markets and their segments.

Price leader strategy involves either the company correlating its price level with the movement and nature of prices of the leading company in a given market for a specific product (depending on the firm’s place in the market and the size of its market share, this may be leader No. 1, leader No. 2, leader No. 3), or concluding an agreement (usually unspoken) with the leader in a given market or its segment, i.e. If the leader changes the price, the firm also makes a corresponding change in the prices of its goods.

Such a pricing strategy is outwardly very attractive and convenient for firms that do not want or do not have the opportunity to develop their own pricing strategy, but it is also dangerous: by excessively constraining the firm’s pricing initiative, it can lead to serious errors and miscalculations (for example, the leader used an erroneous strategy or made a deceptive move, etc.).

Competitive pricing strategy is associated with the implementation of an aggressive pricing policy by competing firms - with their reduction of prices and implies for a given company the possibility of implementing two types of pricing strategy in order to strengthen its monopoly position in the market and expand its market share, as well as in order to maintain the rate of profit from sales.

In the first case, the seller also carries out a price attack on its competitors and reduces the price to the same or even lower level, trying not to lose, but, on the contrary, to increase its market share.

Reducing prices has an effect on markets and its segments that are characterized by high elasticity of demand. The basis for reducing prices is to reduce production and distribution costs. This strategy is also used effectively for those markets in which it is extremely dangerous to lose share.

In the second case, the selling company does not change prices, despite the fact that competing firms have reduced prices, as a result of which the rate of profit from sales for it is maintained, but there is a gradual loss of market share.

This pricing strategy is used in markets with low elasticity of demand, where there is no sharply negative reaction from buyers regarding maintaining a high price level and some infringement of their financial interests when purchasing, where competing firms are small and it is difficult for them to allocate capital investments to expand production, when prices decline can lead to a significant loss of profits and when this selling company has confidence that it is able to restore lost positions in the market due to its high prestige among buyers.

Prestige pricing strategy involves the sale of goods at high prices and is designed for market segments that pay special attention to the quality of the product and brand and have low elasticity of demand, as well as sensitively responding to the prestige factor, i.e. consumers do not purchase goods or services at prices they consider too low.

The prestige pricing strategy is possible in the case of high prestige of the company and its products, as well as minimal competition, with constant or increasing relative costs of production and sales as sales proceed.

The prestigious price strategy, like standard prices and unrounded prices, belongs to the group of pricing strategies based on psychological pricing.

Unrounded price strategy provides for setting prices below round numbers. Buyers perceive such prices as evidence of the company's careful analysis of its prices and the desire to set them at a minimum level. In addition, buyers, when receiving change, perceive such prices as lower or reduced. If a consumer intends to buy a product at a price of no more than 20 rubles, then he will buy it for 19 rubles. 95 kopecks the same as for 19 rubles, since the price is in the digital interval specified by him.

Bulk Pricing Strategy involves selling a product at a discount if it is purchased in large quantities. This strategy is effective if one can expect an immediate significant increase in purchases, an increase in the consumption of goods, attracting the attention of buyers of competing companies to the product, and solving the problem of clearing warehouses of outdated, poorly selling goods.

Strategy of closely linking price levels with product quality provides for setting prices at a high level, corresponding to the high level of product quality and the image formed by the company among buyers in relation to its products.

In trading practice, pricing strategies are not used separately by their types, but in combination, when one type is superimposed on others. Thus, the strategy of differentiated prices is used together with the strategy of “cream skimming” and unrounded prices, and so on. For example, the Japanese company “Sony” has a differentiated price schedule for various buyers: domestic or foreign, permanent or new, using purchased goods in Japan or exporting them abroad, etc., and at the same time changes the price level depending on from the stage of the product life cycle: at the introduction stage, the product is sold at the highest prices, and at the stage of exit from the market - at the lowest. All these prices are usually expressed in non-round numbers: 198 thousand yen, 1.98 thousand yen, etc.

Pricing Strategies – a reasonable choice from several price options (or a list of prices), aimed at achieving maximum (normative) profit for the company in the market within the planned period. In modern pricing practice, an extensive system of pricing strategies is used, which is generally presented in Fig. 21.2.

Differential Pricing Strategies based on the heterogeneity of buyers and the possibility of selling the same product at different prices.

Competitive Pricing Strategies are based on taking into account the competitiveness of the company through prices.

Assortment pricing strategies applicable when a company has a set of similar, related or interchangeable goods.

Rice. 21.2. Pricing strategy system

Discount pricing strategy in the second market based on the characteristics of variable and fixed costs of the transaction. It is beneficial for the company to use this method. For example, new drugs often face competition from identical but much cheaper generic drugs. The company is faced with a choice: either maintain a fairly high price for patented drugs and lose part of the market, or reduce the price, incur losses on this difference, but maintain or expand the sales market. A possible strategy is to differentiate pricing between branded and generic drugs.

Periodic discount pricing strategy based on the characteristics of the demand of various categories of buyers. This strategy is widely used for temporary and periodic price reductions on off-season fashion items, off-season travel rates, matinee ticket prices, daytime beverage prices, and peak utility prices. The strategy is also used when reducing prices for outdated models, prioritizing prices for scarce goods and in the “cream skimming” strategy, i.e. setting a high price for a new, improved product based on consumers who are willing to buy at that price. The basic principle of the strategy is this: the nature of price reductions can be predicted over time and it is known to buyers.

Random discount pricing strategy (“random” price reduction) relies on search costs motivating the random discount. In this way, the firm tries to simultaneously maximize the number of buyers who are informed about the low price and those who are uninformed who buy at a high price rather than at a low price. Therefore, this strategy is also called “selling at variable prices.” The main application of the strategy of “random” discounts is the heterogeneity of search costs, which allows firms to attract informed buyers with discounts.

Market Penetration Pricing Strategy based on the use of economies of scale. This strategy is used to introduce new products into the market.

Pricing strategy according to the “learning curve” based on the benefits of acquired experience and relatively low costs compared to competitors. With this strategy, those who buy a product early in the business cycle realize savings over later buyers because they buy the product at a price lower than they were willing to pay.

Pricing signaling strategy is based on the firm's use of buyer trust in the pricing mechanism created by competing firms. Price signaling attracts new or inexperienced buyers to the market who are unaware of competitive products but consider quality important. A good example is the success of some expensive but low-quality products.

Geographic pricing strategy refers to competitive pricing for contiguous parts of the market. This strategy in foreign practice is called FOB (free station of departure).

“Set” pricing strategy used in conditions of uneven demand for non-fungible goods.

Mixed set strategy creates the effect of comparable price, the set is offered at a price that is much lower than the prices of its elements. Examples of this strategy include season tickets, set meals, and stereo and car parts packages.

Pricing strategy "set" based on different assessments by customers of one or more of the company's products.

Above par pricing strategy used by a firm when it faces uneven demand for substitute goods and can gain additional profit by increasing the scale of production.

Pricing strategy "image" used when buyers focus on quality based on the prices of interchangeable goods.

Pricing strategic choice – This is the choice of pricing strategies based on an assessment of the company's business priorities. Each company in market conditions has many options for choosing pricing strategies. The company's goals and consumer characteristics determine this choice (Table 21.2).

Table 21.2

The relationship between firm goals, customer characteristics, and strategies

The essence of pricing strategy

Pricing strategies are part of a company's marketing strategy and overall company development strategy.

Note 1

A pricing strategy is a set of methods that are used to set market prices for goods and services.

Pricing strategy is the choice of possible changes in the price of a product in market conditions, which allows you to achieve the company’s business goals.

A pricing strategy is a model of company behavior planned for the long term, the main goal of which is the effective sale of goods/services.

The pricing strategy serves as a condition for determining the positioning of products in the market, and it is also a function that is formed under the influence of several factors:

• product novelty;
• life cycle phases;
• combination of price and quality;
• competitiveness of the product;
• market structure and company position in the market.

Each factor should be studied taking into account the organization's reputation, distribution and promotion system.

Note 2

The choice of pricing strategy is significantly influenced by the stage of the product life cycle. At each stage of the life cycle, their own pricing strategies are developed and implemented.

During the implementation phase, 4 strategies are applied within the company’s pricing policy. At the growth stage, with increased competition, enterprises organize their own sales channels and attract independent sales agents. There is a process of rapid sales due to the improvement and modernization of products, entry into new market niches, and increased advertising. This leads to repeat purchases. In this case, enterprises usually set high prices to skim off the market.

At the maturity stage, sales volume stabilizes and a class of regular customers appears. When saturated, sales become completely sustainable and are supported by repeat purchases. Particular attention is paid to the search for new segments and opportunities for new use of products by regular consumers.

During the recession phase, attempts are made to increase sales. In this case, the goods undergo changes, the quality improves, and the properties of the goods are modified. A possible price reduction will help bring back old customers and attract new ones.

Types of Pricing Strategies

Pricing strategies are divided into three groups:

• cost-oriented;
• demand-oriented;
• with a focus on competition (closed tenders).

In the first case, the strategy is based on the principle of break-even production (income is equal to total costs).

$Ts K = Hypost + Iper K$, where:

$T$ is the price;

$K$ is the quantity of goods;

$Ipost$ – fixed costs;

$Iper$ - variable costs.

The second group of strategies involves the quantitative measurement of price sensitivity, which is carried out using indicators: elasticity of demand and “perceived value”.

Within the third group, it is possible to use three mutually exclusive strategies:

• adaptation to market price;
• consistent reduction of prices;
• consistent overpricing.

There are also other types of pricing strategies:

1. high price or skimming strategy;
2. average or neutral price strategy;
3. low price or price breakout strategy;
4. target price strategy;
5. preferential pricing strategy;
6. strategy of following the leader.

The high price strategy occurs when the product is at the introduction stage. The goal of this strategy is to maximize profits through buyers for whom the product has high value and is willing to pay a high price for it. As long as there is no competition in the market, the company remains a temporary monopoly.

The average price strategy takes place at all stages of the product life cycle, except for the decline stage. This strategy is followed by companies that consider making profits on a long-term basis.

The price breakthrough strategy is used at all stages of the life cycle. It is particularly effective when price elasticity of demand is high. This is a strategy for making long-term profits, not quick profits, as is the case with the skimming strategy.

The target price strategy provides for a constant amount of profit received, regardless of changes in prices and sales volumes. This strategy is used by large business companies.

The goal of a discount pricing strategy is to increase sales. It takes place at the final stage of the product life cycle and is carried out in the form of discounts, promotions, etc.

The “follow the leader” strategy is the setting of prices for new products not in strict accordance with the price level of the leading company. The pricing policy of the leading enterprise in the industry is taken into account. The cost of the product may be lower, but not significantly. The main condition is a minimum of differences in the company's new products compared to most offerings on the market. In this case, prices for goods approach those of the market leader.

Development of a pricing strategy in marketing

The pricing strategy development process includes the following steps:

1. collection of information (selection of regulations, cost estimation, formulation of goals, identification of potential buyers, competitors and clarification of marketing strategies);
2. strategic analysis (assessment of government regulation, financial analysis, competitor analysis, segment market analysis);
3. creation of pricing strategies.

At the first stage, information is collected and all costs are analyzed. Particular attention is paid to the selection of regulations that describe the state of prices in the industry, the possibility of state regulation of prices, etc. The company's financial goals are also specified.

At the second stage, the information received is subjected to a thorough strategic analysis. The government's influence on the company's pricing policy is predicted.

As part of this stage, the following indicators are calculated:

• the amount of net profit;
• the amount of growth in sales volume with a decrease in prices and an increase in overall net profit;
• the maximum permissible decrease in sales volume when the price rises, when the total amount of net profit falls to the existing level.

As a result of the analysis, the company receives relevant and objective information for choosing a pricing strategy.