I recap preceding article about pricing strategy for a new product below:
There are three pricing plans for launching new product; they are
- Skimming pricing
- Penetration pricing
- Initial pricing
Each strategy has minus and plus, and each pricing method has a different condition to concern.
I don't want to talk further here, and you can read this article for more observation.
Now, I want to explain another pricing strategy. The pricing strategy for established product. Established product is in maturity stage at product life cycle.
I restate the point. You will know about pricing strategy for the product in the maturity stage at a product life cycle.
For additional information. There are four cycles in product life cycle; they are
- Introduction (new product) stage
- Growth stage
- Maturity stage
- Decline stage
Each stage has different pricing method and approach. Let's talk about pricing for established product.
Pricing strategies for established product
The reason you must adjust a price although the product has been established in the market
- Facing a change of current environment, for example, several competitors are decreasing their price.
- Confronted with a shift in demand, for instance, the change of customer need or customer want.
- There is a new product from a competitor, for example, a competitor enter your current market.
- There is new competitor which offers a lower price with the same benefits as your product.
Types of pricing strategy for established product (current product)
1. Readjust current pricing
A company keeps the current price to sustain a market share position, keep up company's profitability, and increase a good company's image.
Suitable conditions to perform price sustaining method:
- A market isn't influenced by environmental changes.
- The uncertainty which is related to customer response against pricing changes.
- If you are at the stage of building an image, then you respond the market or government to keep up the price so that your positive image increases.
The expected result of implementing price sustaining strategy:
- Keep sustaining a status quo of your brand image in the market.
- Your business performance remains stable and grows in the future by the increasing of brand image,
b. Decreasing a price
The reasons why you should lower a price are below:
- Because of inflation, people become price sensitive, and you respond them by reducing your price.
- You lessen a price because of a tight competition.
- Running an offensive strategy so that another competitor can't enter the current market.
The requirements for implementing decreasing a price policy:
- You must have enough/big financial support.
- You must fully understand product demand information from a market.
The considerations before decreasing a price:
- Financial ability
You have strong financial support in the long term. Why? Let me tell you. If you lessen your rate, then the competitor follow your action (they have a lower price than you) pricing war will happen.This situation will force you decreasing price more for a short/middle term to get more sales volume.
If your company doesn't have a strong financial capability, your business will be loss.
- Product quality
Your product has strong differentiation and unique. Your customer has perceived that you deliver a good quality product.
If you meet two conditions above, there is no need to decrease a price.
- Brand impact
Mostly, people assume that high price indicates high quality. Therefore, you must be careful about this thing.
The thing you must do is educating people that your product has the same quality as before with the lesser price.
c. Increasing a price
The goal of increasing the price is to keep up a profit during inflation. As I notice earlier that if you have outstanding brand image among the people and have strong product differentiation, you can do not only keeping the price but also increasing the price.
The expected result of increasing the price:
- Get higher profit margin
- Get segmented market; market which has brand and price awareness
- If name and price awareness increases, sales volume will increase.
2. Single price strategy
A company set the same price to every customer with the same quantity or the same quality.
Goals of implementing single price strategy:
- Simplify a price determination
- Maintain goodwill
- Having good relationship with all customer
The requirements for implementing single price policy:
- You must thoroughly analyze your position among competitor.
- You have to examine all cost structure completely.
- You must understand all information which is related to price variability (analyze the same price for everyone).
- You must understand your economic scale.
- You must comprehend competitive price information in the market.
The expected result from implementing single price strategy:
- Costs including administration cost are reduced.
- Constant profit margin.
- Can increase good image
- Stable market growth
3. Flexible pricing strategy
Flexible pricing is pricing adaptability, a different price for the different customer. Different customer means different location, different market segment, different time delivery, different distribution channel, etc. Although there are differences, but the product quality is the same (the same product and the same quality).
Things which drive the implementation of flexible pricing strategy:
- There is a cost variability
- There is a different request in a different market segment.
- Relationship level to some customers.
- Some customers have an ability to negotiate a price.
- Geographic compliances (multiple zone pricing, free on board, origin pricing, and so on)
- Discount adjustment, for examples quantity discount (discount based on quantity), cash discount (you will give special discount if customer pay cash)
The limitation of implementing flexible pricing strategy:
- Some customers will be dissatisfaction if they know another customer pay a lesser price for the same product and the same quality.
- Customer will try to negotiate for getting a lower price.
Summary
- There are four stages at PLC (product life cycle); they are introduction stage, growth stage, maturity stage, decline stage.
- You have to know your product life cycle phase, so that it makes you easier to set or readjust a price for your product.
- Each stage has different pricing strategy.
- You have read pricing strategy for the product in the maturity stage at a product life cycle, and I hope you understand, then implement one of the strategies above.
