Actually, determine a correct price is a difficult problem to solve, because there are several price setting considerations you must concern.
Price setting consideration has a close relation to your pricing objectives. In other words, you must align your objectives and goals to this considerations.
Consideration in price setting
As I told you before, there are several thing you must concern in determining your product price.
Here are the thing you have to consider:
- Market demand estimation and price elasticity.
- Competition response and anticipation for facing new environment of competition.
- Market share expectation.
- Marketing policy
(Basu, 2000)
Now, let's comprehend each items more.
Market demand estimation and price elasticity
First thing to perform in competitive pricing strategy is make an estimation of market demand. You can perform several actions below to make an estimation of product demand in the market, they are:
- Set an expected price.
- Make an a number of sales estimation in various price level with various level of product demand.
- Set BEP (break event point) which is aligned with sales volume estimation.
Product price determination is associated with production cost. Therefore, you can determine a number of profit margin.
The conclusion is: an estimation of market demand is important to product price determination process.
Competition response and anticipation for facing new environment of competition
The second concern is competition condition. It affects product price determination. Therefore, a Marketer must know the environment of competition in the market.
The competition emerges in the market because of many factors, several of them are:
- Similar product which is created by other companies.
- Similar product which has the same target market.
The things to concern to response this competition are:
- Production cost.
- Price.
- Product quality.
If you prepare these things, you will be ready to face current competition and to face new environment of competition.
Market share expectation
Ideally, a company must have market share that is bigger from it's competitor. So, the company try to do the best effort to utilize his all resources.
It is important to set a proper pricing strategy. I notice there are many companies try to price decrease strategy during their promotion time to expand their market. They believe that they can attract more consumer and increase their market share with this strategy.
But, this strategy is not applied by some companies who has another pricing goal and objectives. Their pricing objective is build brand image. So, they ignore price decrease strategy because they believe that high price means high quality and they keep building their image with this high quality.
The conclusion, you are free to choose whether price decrease strategy or price increase strategy. Both strategies have positive impact and negative impact. But thing to concern is aligning your strategy with your ultimate pricing objectives.
Marketing policy
This item of considerations is about objectives, goal, mission, procedures, system, etc. Marketing policy must be built upon product, distribution system, and promotion program.
- A number of products have an impact on price.
- Distribution system affects the product price. For example:
- Price for end consumer is different from price for reseller.
- Price for reseller is different from price for distributor.
The conclusion is if you have direct selling policy (sell to end consumer) you will obtain more profit margin, whereas if you have distribution channel (you have distributor, reseller, etc.) your profit margin will be decreased.
- If you choose price decrease policy to attract new customer, you have to aware that your profit margin will reduce.
Now, you have read all the containing article about consideration in price determination. Every company has different considerations based on their objectives and policies.
This article is only show you the general consideration in pricing strategy. I hope you enjoy, and you can read another article about pricing strategy here:
Pricing in Marketing – a basic concept of pricing
Goals of setting pricing strategy – Pricing objectives explanation
