Sometimes, people tend to underestimate the impact of pricing to the development of a company. Although proper pricing may not lead the company to win, Pricing means more than just sticking a price tag on the product or the service for the company. It is not only closely related to profit but also contributes to the competitive strategy adopted by the company in certain ways. Pricing is not only affected by the product or the service’s cost, but also deeply influenced by the competitive strategy and customers’ willingness to pay. We should never treat pricing as isolated business activity away from the whole situation of the company. The match between pricing strategy and the whole view of the company would improve the company’s capability to win while improper pricing strategy would undermine the company’s competitive advantage and mislead customers.
Pricing strategy should be integrated with competitive strategy?
Yes! Pricing should match the company’s competitive strategy. Competitive strategy shows how the company compete with other competitors and how the company retain its competitive advantage over other companies. According to the type of the benefit delivered to customers, companies can adopt cost leadership strategy and differentiation strategy. As concluded by Nielson (2014), Apple’s premium pricing strategy serve to its product differentiation. Rather than providing customers with cost benefits, apple focuses on providing them with a premier product and a premier user experience. Therefore, premier pricing strategy demonstrate the ambition of Apple. The hardware and user interface are designed to provide value for the price by attracting a lot of good and loyal users. Therefore, Apple can charge a premium price as long as it has a competitive advantage.
Pricing strategy should be based on the understanding of customers?
Yes! Pricing strategy should take the needs and desire of consumers into consideration. For instance, another smart phone provider called Xiao MI in China would never charge users highly because it adopts cost leadership to penetrate the market. What’s more? It potential users are those who earn far less than those who tend to buy I-phone. If Xiao MI copied the pricing strategy of Apple, its existing customers would turn to other cheaper options. Clear segmentation would not only help organizations to win in assessing customers, but also improve the quality of pricing strategy.
Pricing strategy should take unique industry features into consideration?
Yes! Pricing strategy should take unique industry features into consideration. This is particularly important in luxury industry. Because you can find consumers in luxury market which they never care about price. High price attached on those luxurious jewelleries, bags and watchers becomes a privilege to those who can afford to buy. If everyone can afford to buy a Gucci bag, will Gucci win the market? Of course not, once the brand presented itself in luxury market, it is disastrous for luxury organizations to lower its price forever. Because existing customers would feel cheated and they would undervalue the value of the products of the company. In fact, customers of luxury industry are willing to pay more and more to gain the feeling of uniqueness and a premium sense of identity. Yeoman and McMahon-Beattie (2005) provided that premium pricing is psychologically associated with Luxury. Allsop (2004) supported that premium pricing should consider both the quality and the intangibles of style, uniqueness, occasion and experience. It is interesting to see that the increase in price would not reduce demand but would increase demand, which is against normal supply and demand law. But this is the nature of luxury market.
Today, this blog just introduces some interesting things about pricing strategy. To be honest, the more the author studies, the more complicated the pricing presents itself. Rather than just reflecting the cost plus gross margin, pricing shows the company’s ambition and layout to a deep extent.
Allsop, J. (2004) ‘Premium pricing’, paper presented at the Future Foundation Changing Lives Conference, 2nd December, Queen Elizabeth Conference Centre, London.
Nielson, S. (2014), Apple’s premium pricing strategy and product differentiation, retrieved in 2016/5/1, <http://marketrealist.com/2014/02/apples-premium-pricing-strategy-product-differentiation/>
Yeoman, I and McMahon-Beattie, U, (2005), ‘Luxury markets and premium pricing’, Journal of Revenue and Pricing Management, Vol. 4, No. 4, 2006, pp. 319–328