Firms do their pricing in a variety of ways as discussed in the previous lesson. Executives complain that pricing is a big headache and one is wary of committing a go/drop error in the pricing decision.
Introduction
Firms do their pricing in a
variety of ways as discussed in the previous lesson. Executives complain that
pricing is a big headache and one is wary of committing a go/drop error in the
pricing decision. Pricing less than what the customer wants to pay and pricing
more than what the customer wants to pay are both costly errors. ‘There are two
fools in every market: one asks too little, one asks too much’, says a Russian
Proverb. Many companies do not handle pricing well. Some common mistakes are:
1. Price is not revised often enough to capitalize on
market changes
2. Price is set independently of the
rest of the marketing mix rather than as an intrinsic element of
market-positioning strategy
3. Price is not varied enough for
different product items, market segments, distribution channels and purchase
occasions
The importance of pricing for
profitability was demonstrated in a 1992 study by McKinsey & Company.
Examining 2,400 companies, McKinsey concluded that a 1% improvement in price
created an improvement in operating profit of 11.1%. By contrast, 1%
improvements in variable cost, volume and fixed cost product profit
improvements of only 7.8%, 3.3% and 2.3% respectively. Effectively designing
and implementing pricing strategies requires a systematic approach to setting,
adapting and changing prices.
Tags : MARKETING MANAGEMENT - Pricing Policies and Constraints
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