Cost-plus pricing is the most common procedure in pricing as it carries a financial prudence aura. This type of pricing in practice is a mediocre financial performance blueprint while in theory it is a modest guide to profitability. Cost-driven pricing problem is fundamental due to impossibilities in determining the unit cost of a product before determining its price. Cost-pricing leads to underpricing in strong markets and overpricing in weak markets. Hotel and restaurant markets mostly use this method of pricing.
Value-based pricing does not create a satisfied customer base. It is difficult to understand product value that satisfies a customer. Low pricing should not be a substitute to sales efforts or adequate marketing. The consumer value model has been used by Nike in marketing its sneakers causing an increase in its prices while others are reducing. When Nike increased its sneaker prices, it increased the perception of its products to its consumers.
Share-driven strategies perform with the policy of letting competitive conditions to be dictated by pricing. In this type of pricing, pricing assists in achieving sales objectives. Price-cutting is the most effective and quickest way to achieve sales objectives but it causes poor financial decisions among customers.
Proactive means that companies anticipate disruptive events like competitive threats, negotiations with customers and technological change and in advance develop strategies to deal with them. For example, if there is anticipation of a new competitor, a company that is proactive will provide a lower priced option. This type of strategy does not react to trade-offs and terms that are defined by a competitor or customer.
Estelami, H. & Maxwell, S. (2006). Strategic pricing. Bradford, England: Emerald Group Pub.
Response to Post 1
Hello, you have discussed the pricing strategies in a simple, and easy to understand manner. You have discussed the three pricing strategies giving an example of an organization that uses each specific strategy. Each pricing strategy has its own limitations and advantages. The economic changes that affect the profitability of the economy are market information, regulation, technology, relative costs or consumer preference. Customer-driven pricing does not rely on creating satisfaction to customers. The simplest method that determines price is the cost-plus pricing. However, this pricing is disadvantageous because costs cannot be reduced, does not consider the willingness of a customer to pay, and incomes cannot be increased. Share-driven pricing is the most effective and quickest that achieves short-term market benefit. I also agree with you that pro-active pricing in the most important pillar as the principle takes account of disruptive event.
Response to Lauren Sparkes
Hello Lauren, I like your discussion on strategic pricing. The three concepts -cost-plus, customer-driven, and share-driven pricing strategies impact the business both negatively and positive. Strategic planning involves making informed trade-offs between volume and price in order to maximize profits. Cost-pricing may be used by a business to overestimate the product price. It is also the simplest method as you have stated in your discussion that adds up cost with and profit per product. Proactive pricing is more significance than other pillars as you have stated. This is because; it considers the behaviors of a consumer and the pricing competitive dynamics. Use of cost-plus pricing causes underpricing in stronger markets and overpricing in weaker markets. Which is the least important principle while developing a successful pricing strategy?
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