Pricing policy of a company sets out the prices of their products or services. Pricing policy may vary depending on region, sales volume (wholesale vs. retail) and the like. Every business or entrepreneur consciously (or sometimes unconsciously) sets out and deploy some pricing policy in some way, that is to say, determines prices, discounts, who and under what conditions can apply the discounts and so on.
Note that the price is only one of the factors based on which customers make their purchasing decisions. Therefore, the pricing policy should always be considered and determined in the context of supply, situation on the market and other factors of the marketing mix.
What does pricing policy involve?
- Defining the prices (pricing) of goods and services – the price level
- Price uniformity or dissimilarities for different types of customers, locations and segments
- Price trends, change in price over time - introductory pricing, seasonal prices, sales, discounts and the like
- Reasons for price changes - what strategic goals should be achieved by price level adjustment or price changes
What are the most frequent reasons for determining pricing policy?
Successful pricing policy must have some specific goal the company wants to achieve. On the one hand, there are offensive strategies aimed at gaining more market share or earning more money, on the other hand there are defensive strategies aimed at surviving, stopping losing market share or at least slowing down the decline.
The most common goals of pricing policies are as follows:
- Market entry - if a business wants to enter the market, it must be able to determine the right price that future customers will accept. Most often the price is determined either based on what the competitors are charging or based on the costs and margins.
- Achieve the highest possible market share - the goal is to attract as many customers as possible at the expense of competing businesses
- Suppressing or destroying competition - the goal is to sell at prices that competitors will not be able to compete with
- Maximization of profit - the goal is to achieve maximum profit, ie. to sell with a high margin to a large number of customers; can only be applied in case of high demand
- Avoiding losing market share - the goal is to keep prices similar to the competitors
- Keeping prices lower than competitors - one of the offensive tactics, especially in hyper-competitive markets, such as e-shops (selling commodities); the goal is to increase the sales volumes and to raise market share
- Survival - the goal is to reduce or stop the decline in sales, usually achieved by means of setting lower prices than competitors
What are the most common pricing policy instruments?
- Discounts - seasonal, loyalty, sale
- Introductory prices - usually lower
- High price to create a brand - especially for luxury goods
Why do we need to determine pricing policy?
Companies need to reach various goals at different stages of their development. In the long run, the profit should be the goal, because without profit, business makes no sense. To achieve this goal, however, the company may use different pricing policies. For example, when entering the market, the business may take off with introductory prices, it can sell its products at below-cost while trying to beat its competitors (dumping), provide their services or products for a certain period of time free of charge and so on.