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Pricing strategy refers to the series of maneuvers that businessmen employ to arrive at the final price of a new product at the market.
In general, a business man should follow the following steps before settling down on the price of a commodity: come up with a marketing strategy, decide on the marketing mix, determine the demand versus price relationship, calculate the cost incurred, consider environmental factors, outline the pricing objectives and finally settle down on the cost of the commodity (Anon 2).
Putting into consideration a few examples, Tata, an Indian car company introduces the cheapest car in the market which after selling for a while undergoes a price hike. The company would have failed to maintain the cheap price due to various reasons. For instance, despite the car’s cheap price, it did not realize market share maximization which was one of its targets since it sold just 45,000 in a country of over a billion people.
The company had considered some ethical issues before settling down on the price like excluding features that may raise the cost of production and setting the plant near the source of raw materials. However, low prices are usually prone to price wars and may be considered internationally as dumping.
Again, the Indian government initiative to develop the cheapest PC attracts so much debate from manufacturers. This goes hand in hand with the introduction of $35 tablet PC which appears to be impossible to many. Such initiatives may be successful since the government may subsidize the manufacturing cost in its efforts to make each of its citizens own a PC.
The government considers legal issues like subsidizing the cost for the benefit of their consumers, though it may raise questions from other manufactures. However, price standardization has not been accepted in many countries.
Automobile Sales
Examining the conversation between the three car dealers and the report thereafter, it is very clear to everyone that automobile prices have drastically gone down by a very high percentage compared to the previous years. Many programs have been put in place to have the prices cut by almost 40% that have seen all kinds of vehicles going at a lower price.
Apart from prices falling, car sales are not very good probably due to gas prices. However, quite a good number of people are targeting the collapse of the general motors’ hoping that this would cause the prices to fall even further.
Manufacturers have been employing various pricing strategies to ensure that despite the low prices and low sales, they still remain in the market and do not undergo losses. There are five pricing strategies that are evident in the automobiles industry which include price skimming, penetration pricing, experience curve pricing, complementary product pricing and break even pricing (Rao 15).
Price skimming involves setting initial prices very high to target those customers who are less sensitive and then gradually reducing the prices to have them fall even further. The referred articles show that automobile prices were higher in the previous years, have shoppers like Ousman who rarely bargains and also most people are waiting for General Motors to collapse hoping for even lower prices.
In penetration pricing, the dealers set lower prices to accelerate product adoption as we can see dealers hoping that customers will flock in the showrooms. “Experience curve pricing” targets higher volumes of sales and lower costs through accumulated experience.
Complementary product pricing is seen where one dealer says that most profits are not realized from new cars but after sale services like spare parts. Finally, no dealer talks of incurring losses meaning that they have employed the break even pricing (Langfitt 2).
Product Marketing Versus Service Marketing
There is a major difference between marketing of product when compared with marketing of services. Many business men market their tangible products very easily but find it very tricky to market services. Several features significantly differentiate these two kinds of products some of which are discussed below.
Marketing of a service involves marketing of relationship and value as compared to the visible tangible product. Relationship and value needs consumer conviction rather that a tangible product that he/she can confirm of the same. The physical presence of a commodity has more appeal to the consumer rather than something that can only be confirmed after it has taken place.
For example, it is possible to look at the value of a packet of maize flour by looking at the ingredients whereas it’s not possible to know the value of counselor’s services. Whereas the reputation of a tangible product can be determined by the various products on display, the reputation of a service is time based and depends on how a particular individual can deliver that service.
For instance, it is not easy to determine the reputation of a lawyer unless you confirm the way he will defend you whereas by walking through a showroom, it is easy to outline the reputation of various car models. Again, it is easier to test the quality of a tangible product, like checking the features of a computer that you may be looking for but it is very difficult to test the quality of a service before receiving it.
For instance, you can only confirm the quality of the work of an architect by the products of his structural planning. Also, a consumer can return a tangible product to the seller but a service cannot be returned (DK 6).
Works Cited
Anon. Pricing Strategy. NetMBA Business Knowledge Centre, 2010. Web.
DK. Product Marketing vs. Service Marketing What You Need to Know. Business Knowledge Source, 2010. Web.
Langfitt, Frank. Cash or Credit, Car Deals Abound. NPR, 2009. Web.
Rao, Vithala. Handbook of Pricing Research in Marketing. Massachusetts: Edward Elgar Publishing, 2009.
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