Why the price must always be right
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With
last month's rise in VAT to add to the other existing pressures on
consumer disposable income, charging the right price for your
product is more crucial than ever.
Although not always considered to be a responsibility of the
marketing function, price is a key element of the marketing mix,
and the only one of the four Ps which generates revenue.
However, whilst that is its primary role (marketing is after all
the art of satisfying a customer's demands profitably), it also has
several other important functions. For example, the price which you
charge for your product must also be in line with the wider
marketing mix so that you create a consistent image in the mind of
the consumer; it is no good developing a premium product which you
then price at the low end of the market.
Obviously on this point your price must cover costs, however
cost plus pricing is not necessarily your best strategy. Your costs
should not drive your pricing; instead the price set should be what
you've deduced from your research that the market will bear.
Remember your customers will, if there is no other information
available, judge the quality of your product on the price which you
charge and use it to benchmark your product against the
competition.
Proof of this, if needed, can be found through our preference
for certain branded food products despite the fact that, during
blind taste tests, no discernable differences can be found.
Your price will also change over time as your product develops
and matures - like all other elements of the marketing mix it needs
to be regularly checked, reviewed and modified where necessary.
Whilst you may price your new product high to gain recognition
and prestige, as the market grows and matures the price will need
to adapt to competitively win market share. Once the market is
saturated and beginning to decline you may wish to raise the price
so as to gain as much revenue as possible before launching a
replacement.
Finally, at the risk of repeating points made in previous
articles, price is something which you should never compete on. By
competing on price you will, whilst potentially make short-term
gains, reduce your product to a commodity.
This will undermine all other marketing efforts made, destroy
the brand strategy and encourage an already fickle consumer to
become more price conscious. What is more, it has no guarantee of
success since, should your competitors match your reduction, all
you will have achieved is an erosion of your margins.
Together with KM Business Events, the Kent Branch of the CIM
will be running a pricing strategies workshop on February 16. More
information, including booking details, is available on www.cim.co.uk/kent
Wednesday, February 16 2011
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