E-Marketing Professionals

PRICE STRATEGY

A price strategy may be cost-based, demand-based, or competition-based. With a cost-based price strategy, the marketer sets prices by computing merchandise, service, and overhead costs, and then adding the desired profit to these figures. Demand is not analyzed. The price floor is the lowest acceptable price the firm can charge and attain its profit goal.

In a demand-based price strategy, the marketer sets prices after researching con¬sumer desires and ascertaining the range of prices acceptable to the target market. For example, if the firm finds that its customers will pay $10 for an item and it needs a $3 margin to cover profit and selling expenses, production costs must not exceed $7.

Demand-based pricing is used by marketers who believe that price is a key factor in consumer decision making. These marketers identify the price ceiling, which is the maximum amount consumers will pay for a given good or service. If the ceiling is exceeded, consumers will not make purchases. Its level depends on the elasticity of demand (availability of substitutes and urgency of need).

Under a competition-based price strategy, the marketer sets prices in accordance with competitors. Prices may be below the market, at the market, or above the market, depending on customer loyalty, services provided, image, real or perceived differences between brands or stores, and the competitive environment. Competition-based pricing is applied by firms that face competitors selling similar items.