Your Pricing strategy and the price of your product is one of the most important factors influencing decision making. This can be explained with a suitable example. You enter a branded showroom and you find a shirt or a dress to your liking. You immediately check the price tag, and if the price is right, you will buy the product. If however, the price is too high, then you are likely to avoid the purchase. And if the price is too low, then the store you have entered, loses a part of its image, because it has such low priced products.
What this tells you is that your pricing strategy needs to be laser sharp. Pricing plays a role in decision making as well as building an image for the company. There are several reasons that pricing strategy is one of the most important P in the marketing mix and its importance is increasing, be it products or services sector. Here are some reasons justifying the same.
1) Competition is very smart – The major difference between the era of production and the era of marketing is that, today you have a lot of competition. If you look at home appliance showrooms, there will be one showroom right next to another showroom of home appliances itself. And both will be haggling for price. Thus the competition is so high, that if you do not maintain the pricing within competition itself, your brand will not be able to get more distributors. And if your distributors have problems with your pricing strategy, then you cannot exist in the market. On the other hand, if your products are costlier than another brand, but do not provide the necessary features, then your customer is likely to shift to competition. Thus, pricing strategy needs to consider both customers and competition before setting the price.
2) Online price checking can be done – Internet is the bane for small retailers and small businesses. Where initially the supply was less and demand was more, people used to quote prices touching the sky and thereby earn more margins. However, nowadays the same is impossible. Because even before the customer enters your showroom, he has already checked prices on Amazon or Ebay or Snapdeal. It is likely that after checking these prices, the customer does not enter your showroom at all but rather buys the product online itself. Thus, online price checking has made it even more important that you pay close attention to your pricing strategy, and keep it constant across the market.
3) People are spending selectively – Today, a television costs cheaper than a mobile phone. Take an Apple Iphone or a Samsung galaxy high end phone and you will find that the cost is much higher than televisions. In fact, you can purchase 2 televisions in that cost. Now, look at it from the customers perspective. Customers who want the Iphone, will buy it, and then not buy anything for 6 months. Neither a television nor a refrigerator nor anything else!! Isnt that alarming for the businesses who are not into electronics. Thus, because customers are spending so selectively, and because the costs of products are so high, you need to go out of your way with offers and promotions such that the customer is attracted to your product first and wants to grab your product before he buys anything else. You need to understand that customers have limited money. They are either going to spend it on your product / brand, or someone else’s product / brand.
4) Spending patterns have changed – The above example proves one more point. Spending patterns have changed drastically. Where a decade back the majority of spending was on smaller products, costing less money, today electronics and clothing are at the foreground. This is good news because this shows that the earnings of people have gone up. But at the same time, most of these products are heavily marketed or branded, thereby increasing the cost of the product. Thus, where buying clothes was a low involvement purchase, today it has become a high involvement purchase because of the numerous brands available, each of them marketing themselves higher then the next. Thus, where people used to buy a lot of clothes which were unbranded, now they probably buy a pair a month but ensure that it is a branded cloth that they are wearing.
5) Value for money – Value for money may be searched in a 2 dollar soap or a 500 dollar dress. You might think that a nice, scented soap is OK at 5 dollars, whereas someone else might think that a 5 dollar soap is too much. Ultimately, value for each customer is different and each customer now wants value for money. The concept has received a boost because of customization and long product lines being present in each company. HUL or P&G for example have many lines of soap, detergents and other such FMCG products. This gives power in the hands of the customer because the customer can buy what he wants, what he values. And value has a price. If the price is high, and the customer does not think that the price justifies the value, then say bye bye to your product sales.
The best example of pricing strategy being important is Multi brand showrooms or malls. If you notice, malls are the most crowded because customers get all kinds of prices over there. Premium customers get premium products and mass customers get low priced products. Thus, the decision then lies with the company, of whether they want to target the premium customers or the mass customers – And this decision can be made by managing your pricing strategy.