Product and Pricing Strategy, Essay Example

A firm that deals in offering products to the market need to make individual product decisions so that it can deliver the best. These decisions involve defining the benefits that the product will offer which are delivered by its quality, attributes and designs. Product quality is the ability of a product to perform its function. It essentially involves the products durability, reliability, ease of operation and repair. A product’s attributes are a competitive tool for differentiating the company’s product from competitor’s product. The company should therefore assess the attributes value to customer against its cost to the company. A superior product design on the hand is meant to increase customer value. A distinctive product style and design contributes to its usefulness as well as to the product’s roles. It can draw attention, improve product performance, cut production cost and deliver the product sound competitive advantages in the market.

Product branding is a design or a distinctive style on a product that is intended to distinguish goods or services of one vendor or a group of vendors from those of competitors. A brand name should be easy to pronounce, distinctive, easily translate to foreign language, capable of registration and legal protection, and should describe the product’s benefits and qualities. Branding helps the buyers identify products that benefit them and have an implication on the quality of the product. To the sellers, the brand name becomes the basis on which a report can be built about a product’s exceptional qualities. The sellers also obtain a legal protection for exclusive product feature for having a brand name and a trademark. Segmentation of the market can also be done with the help of product brand.

A firm should also consider the product’s brand equity which is the value of a brand on the extent to which it has high-brand royalty, name awareness, perceived quality, strong brand association and other assets. High brand equity enables a company to enjoy many competitive advantages. These advantages include high level of customer brand awareness and royalty, advantage in bargaining with sellers, defence against price competition, quick line launches and brand extension. Unlike the product, services have different attributes which include intangibility, inseparability, variability and the fact that they cannot be stored for future use. It is the firm’s responsibility to ensure that the services offered are distinct in terms of quality so that it can have a competitive advantage.

Pricing is a fundamental facet in marketing because it determines the revenue to be earned a certain period of time. There are several factors (both internal and external) that affect a company’s pricing decisions. Some of these factors include; marketing mix strategy, the cost, marketing objectives, organizational consideration, supply and demand, economic conditions, government policies and social concerns. The company also needs to determine the best strategy to use when pricing products at different scenarios. For instance, when deciding on the best strategy to use for a new or improved product, the marketing department might decide to choose either skimming or penetration. Market skimming pricing is setting a high price for new product to skim maximum revenues for segment willing to pay the high price. The company therefore, gets few sales but makes more profit.

However, there are certain conditions that have to be met to successfully practise price skimming. These conditions are the cost of producing a smaller volume needs to be relatively low so that it can eliminate the chances of cancelling the advantage of charging more, the product quality and image must support its higher price and enough buyers must want the product at that price and should not enable the competitors to enter the market easily. This pricing strategy has some benefits according to Tutor2u (n.d.) and these include covering up of set-up costs, high mark-ups for a dealer in the case of a product distributed through the dealer building high-quality image because it gives the firm a chance to reduce the prices in case a competitor arrives. The latter is better than when the initial price is low because the company would lose sales volume if it increased the product price.

If the company chooses penetration, then it will set a lower price to attract a large number of purchasers and a market share that is large. There are several conditions that favour setting a low price and these include price sensitivity of the market so that a low price produces more market growth, the reduced price helps to keep out the competition and; production and distribution must fall as sales volume increase. This strategy is mostly used by firms that need to use spare resources. It promotes products that are captive and complimentary because reducing the price of the main product attracts sales. There are two disadvantages of penetration pricing strategy. These are; the threat of competitors who may want to reduce their prices too and the misconception that the quality of the product is low due to low price. Between skimming and penetration, skimming would best suite a new product because it has more benefits.

Product line pricing is setting price steps between different products in a product line based on company’s differences between the product, customer evaluation of different features and competitors prices. The seller’s responsibility is to establish quality differences that have been perceived to support the price difference. This method of pricing normally applies to products which are of the upgraded such that the primary product is charged less while the one with more features is charged more. Product line pricing seeks to gain more profits and is accomplished by focussing on the whole product line rather than an individual product.

Value pricing is where prices are set based on buyers perception of value rather than on sellers cost. Price is considered along with other marketing need variables before the marketing program is set. Pricing begins with analysing consumer needs and value perception and the price is set to match consumers’ perceived value. However, measuring perceived value can be difficult and the company may either overprice or under price. Companies have adopted value pricing strategy which has solved the issue of quality versus price. It offers the right combination of quality as well as fair pricing. This is done by simply designing existing brands in a different way in order to offer more quality for a given price or same quality but for a lesser price.

Differential pricing can be described as charging of different prices of the same product to different consumers. For a company to implement differential pricing, it is required to know about its market well considering the tastes and preferences of the customers. Many companies are beginning to realize the importance of differential pricing in marketing. However, this method is quite discriminating because all customers do not buy the same product at the same price. Competing against private labels is generally pricing of products while putting into consideration the prices charged by competitors.

If one was to choose between product line pricing, value pricing, differential pricing and competing against private brands; product line pricing would work for a product that has been in the market for long while value pricing would work on almost all products so long as the sellers add extra features or offers to convince the buyer that the product has considerable value. Differential pricing on the hand, would best suite products that can be charged differently according to the customer; for instance, flight charges in an aeroplane differ with so many aspects such that it is impossible to have all the people on the plane paying the same.

Some of the legal and ethical issues related to tactics are brought about by price fixing, predatory ad price discrimination. The law prohibits price fixing in cases where a seller agrees prices with his competitors, sharing markets to increase prices, imposing minimum prices on different distributors, forcing a competitor out by cutting prices below cost or even having an agreement with competitors on what price to offer suppliers. (Business Link n.d.)

References

Business Link (n.d.). Price fixing, cartels and monopolies. Retrieved on March 10, 2010 from http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073792322

Tutor2u (n.d.). Pricing Strategies- Skimming. Retrieved on March 5, 2010 from
http://tutor2u.net/business/marketing/pricing_strategy_skimming.asp