Friday, 4 October 2013

Pricing & Pricing Strategies

The AMA defines pricing as the 'given ratio of money needed to acquire a given goods or service'. Cost, however, is 'money expended to produce or market its product and service'. That is to say, sellers sell at a price and buyers buy at a cost. 

Pricing Strategy of Vicks VapoRub:

Ø  Penetrative : Low Pricing

Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers.. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term.

The advantages of penetration pricing to the firm/ brand are

·         1. It can result in fast diffusion and adoption. This can achieve high market penetration rates quickly. This can take the competitors by surprise, not giving them time to react.
·         2. It can create goodwill among the early adopters segment. This can create more trade through word of mouth.
·         3. It creates cost control and cost reduction pressures from the start, leading to greater efficiency.
·         4. It discourages the entry of competitors. Low prices act as a barrier to entry.
·         5. It can create high stock turnover throughout the distribution channel. This can create critically important enthusiasm and support in the channel.
·         6. It can be based on marginal cost pricing, which is economically efficient.
The main disadvantage with penetration pricing is that it establishes long term price expectations for the product, and image preconceptions for the brand and company. This makes it difficult to eventually raise prices.

Price Ranges of Vicks VapoRub :-


Grams
Price (INR)
100
55
50
40
10
15
5
9


Types of Pricing Adopted by Vicks VapoRub: -



Ø  Product Line PricingProduct line pricing is when management must decide on the price steps to set between the various products in a line. In other words, it is when a company must decide the price differences between the upgrades of a product or serviceAlso called price lining.

Ø  Competitive Pricing - Setting the price of a product or service based on what the competition is charging. Competitive pricing is used more often by businesses selling similar products, since services can vary from business to business while the attributes of a product remain similar. This type of pricing strategy is generally used once a price for a product or service has reached a level of equilibrium, which often occurs when a product has been on the market for a long time and there are many substitutes for the product

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