Strategic Pricing – Does Your Business Require Prestige Pricing?

The impact of pricing your goods or services depends on the nature of your customer and the conditions surrounding supply and demand. When a company shifts from taking a company-supplied product that is widely marketed and develops a system for customizing it to each customer’s specifications, often they are developed to appeal to new market segments or to a customer’s desire for variety. A segment of customers who are attracted to your product are willing to pay more for it than those in a segment who are less interested. Products or services can vary in quality. The key strategic decision of “which” customers to target, recognizes that potential customers’ behavior is heterogeneous. Many customers have the tendency to draw conclusions about the quality of the product from its price.

Value propositioning includes a high-end market and we find that marketing managers are not as concerned with building significant market share in their category of goods or services. A customer making a more calculated and educated investment purchase is the defining objective in price considerations. Value pricing allows you to set a price at the level you have determined to represent the customer’s perceived value for your product.

A pricing policy (e.g. penetration or market share pricing, skimming or prestige pricing, investment pricing, and competitive pricing) can accomplish many different objectives for various products and services. The pricing strategy creates a large amount of publicity, which helps to create awareness and perhaps preferences among consumers.

Marketing managers cannot identify whether or not a consumer is in its competitor’s database, so therefore they must explore other options such as:

o Investing in better customer databases and retention programs
o Developing new market segments that are less price sensitive
o Pruning product lines or items that are not generating profits for the company
o Building stronger relationships with the channels of distribution

One problem with using costs to set price is that several kinds of costs are related in different ways to an individual product. A second problem is that they may be a function of volume and as a result may be difficult to know in advance when developing marketing plans.

Customized pricing will allow customers to pick and choose the optional features they prefer and pay the price accordingly. The perceived value would be considered a bargain from the customer’s standpoint. However, if a price is higher than the target market is willing to pay, the customer will send a signal that this is a problem and will not buy.