Definition: Pricing strategy is the tactic that company use to increase sales and maximize profits by selling their goods and services for appropriate prices.
What Does Pricing Strategy Mean?
What is the definition of pricing strategy? This strategy takes into account the cost of the product as well as labor, advertising expenses, competitive pricing, trade margins, and the overall market conditions to determine the sale price. Depending on the industry in which a firm operates, there are different pricing strategies to implement, such as penetration pricing, premium pricing, discount pricing and competitive pricing.
Let’s look at an example.
Example
Company A is a leading retailer of sports equipment with a large customer base. The company has segmented its customers based on their level of income, and it implements a premium pricing to the most affluent customers. Premium pricing works better with a segmented customer base or in industries in which a company has a strong competitive edge.
Company B is a newly established company that has recently launched its product line. The company implements a penetration pricing strategy by setting a lower price, seeking to entice more customers into buying its products and services and gain a larger market share quicker.
Company C sells tires. The company implements a discount pricing strategy because its margins are thin and the advertising costs are low. Company C seeks targets mostly low-income customers, seeking to establish a larger market share.
Company D is a prominent seller of electronics. The company implements a competitive strategy by charging as much as its competitors to realize the maximum profit before the price drops further, following a competitive movement. In addition, the company uses the social media to promote its products as there are many similar products available from different sources, and the company is trying to attract more customers by offering them a unique value proposition. Also, smaller businesses are less likely to be able to compete on a brick-and-mortar basis, so the company tries to gain momentum in the online market as well.
Summary Definition
Define Pricing Strategies: Pricing strategy means is a plan that companies follow when setting prices for their products or services to maximize profits.
