Pricing Strategies

Pricing strategies

Pricing is an important factor in the success of any business. There exist different good in the market which include a normal good, giffen good or inferior good and Veblen good. Despite the existence of this distinction of these goods in the market and the effect of changes in prices on quantity demanded chain supply supermarkets will adopt pricing strategies that help than to have a large profit margin. Some of these pricing strategies include price discrimination, promotional pricing, premium pricing, price lining, skim pricing, penetration pricing and price discounting. All these are the strategies that these chain markets are able to maximise profits.

Price discrimination:

This type of marketing strategy involves the introduction of market segmentation by the company, when the segments are introduced then the company is able to price different prices on the goods they sell in the market, higher income earners are charged higher prices while the low income earners example students pay less. Through price discrimination chain supply supermarkets are able to achieve higher profits from the same market.

Premium pricing:

Pricing Strategies

Premium pricing is another pricing strategy that is aimed at attracting high status conscious customers, a good is introduced in the market and its price is set at a higher level than other goods, the objective of these pricing strategy is to meet the needs of some consumers who believe that the high prices are a sign of quality, they believe that the high price on the product is as a result of high production costs which are incurred to make the product the best, for these reason they will buy the product at the high price. These customers also believe that purchasing such a product will be a symbol of self worth. Therefore the customer will buy the highly priced product because they are worth it.

Penetration pricing:

Penetration pricing is a pricing strategy aimed at increasing the quantity sold by a chain supply supermarket, this strategy involves lowering the prices of a product whose demand is highly elastic, this means that when the price is lowered then the demand for the product will highly increase. However this pricing strategy is applied when the price decrease will result into a high decline in costs as the sales volume increases. For this reason therefore the chain supply supermarket will reduce the price of a certain product leading to high decline in costs and therefore high levels of profits.

Price skimming:

Price skimming involves charging high prices on a product but then gradually lowering the prices over time, this strategy is mostly used by a chain supply company in order to recover sunk costs, the firm captures its customers surplus and hence high profits are attained in the

Pricing Strategies

process, however over time after the firm has gained it will lower prices gradually to the market price level.

Promotional pricing:

Promotional pricing involves giving a price cut on certain products for a short period of time, this is a strategy aimed at increasing the demand for a product and also attracting customers to take advantage of these offers, this strategy involves promotional discounts which aid in giving the chain supply supermarkets competitive advantage and increasing consumers turnout into their supermarkets and therefore increasing sales on the product and also other products.

Price discounting:

This is a strategy that is mostly used by chain supply supermarkets where they offer trade

Pricing Strategies

discounts, seasonal discounts and quantity discount, it is commonly used to attract more customers into the supermarket and also as a way to increase demand for its product through quantity discounts, this way the firm is able to maximise its profits by increasing its market area.

Price lining:

Price lining is a marketing strategy used by chain supply supermarkets and it involves product lining which aid in price lining, product lining involve offering products in the market that are related, a product line will may either have products of different sizes, types, product quality or product colour. In this case therefore the width of the product line will be the number of the different products that are sold and the length of the product line will be total number of the product sold.

Product lining therefore helps in assigning different prices to products that are related and in this way the supermarket is able to increase quantity sales and as a result there is an increase in profits due to product and price lining.

References:

Graham Hooley and John Saunders (2004) Marketing Strategy and Competitive Positioning, Prentice Hall, London

Pricing Strategies

Michael McGrath (2001) Product Strategy for Companies, McGraw Hill publishers, New York

Paul Fifield (1998) Marketing Strategy, McGraw Hill publishers, New York

Steven Schnaars (1991) Marketing Strategy: Customer driven Approach, Prentice Hall publishers, London