Premium pricing strategy
This falls under the product line pricing strategies. When a firm has products that are closely related, it tends to price them to match consumer demand in order to maximize profits. In a situation where substitute products have joint economies of scale, a firm may face heterogeneous demand which creates the perfect atmosphere for the introduction of premium pricing (Mills 90). Premium pricing therefore is the situation where a firm has a unique product or service which gives the firm substantive competitive advantage that enables it to charge a high price.
The marketing strategy behind premium pricing is to attract high end status conscious customers. By attaching the premium price the company attaches a luxury image to the product. Marketers play with consumers through introduction of the notion that exorbitant price indicates high quality. High end marketers believe they are worth the price and that the product exhibits flawless performance. The best example of premium pricing is Rolex, the watch, manufacturer.
Penetration pricing strategy is part of the competitive pricing strategies that operate primarily on a firm’s competitive market position. Penetration pricing on its part aim aims at taking advantage of scale economies by pricing goods or services below competitors hence cutting off part of their market share (Mills 110). This strategy involves the artificial setting low prices for the sole purpose of gaining market share.
More often than not, when the firm achieves its targeted market share, it raises the price. Marketers make use of penetration strategy in cases where the market is highly sensitive, where the firm can easily drive down the costs through incorporation of efficient methods of production and where the low price adopted easily discourages completion from competitors. One of the firms that has used and continues penetration pricing strategy is McAfee.
Like premium pricing, price bundling belongs to the product line pricing group of strategies. In cases where demand is heterogeneous, and the products are perishable or non substitutable, firms employ bundle pricing to move the products. Price bundling therefore is the situation where a firm put together several products or services in a single package mainly to get rid of perishable or old stock (Mills 115). Sometimes, marketers realize that the products they have in stores cannot move by themselves. They therefore bundle them with necessary products forcing the consumers to buy all of them. Microsoft currently uses this tactic in moving its software products by bundling them together.
Rolex uses premium pricing to target high end customers for example golfers. They normally sponsor golf events because of the apparent affluent nature of golfers and the fans of the game. The price attached to the watches is perennially high because of believe that by its consumers that the watch represents class. According to Tellis, premium pricing applies in the pricing of durable goods with different versions that service different segments of consumers (156). Often the heterogeneity in demand and the joint economies of scale is what models like Rolex use in its marketing approach.
McAfee on the other hand was launched and given free of charge to companies. After the companies has installed it and found out the advantages, the antivirus maker then contacted the companies and sought a small fee for the services. The fee was way below what the market rates were at the time. Most companies preferred it to other existing softwares. According to Tellis, price sensitive consumers help price insensitive consumers because the later can easily buy the product at a lower price that they were initially willing to buy (152). In this case, the corporations who were willing to buy other antivirus packages at a higher price found it better to buy McAfee at a lower price than they were initially willing to buy.
Microsoft has program line that includes basic products such as OneNote and other not so basic like Outlook with Business Contact Manager. The former costs less than the latter. Microsoft bundles the softwares together and sells them at smaller price technically forcing consumers to buy programs they would not have bought separately. According to Tellis, sellers and marketers seek to maximize on the purchase occasion because the perishability of durable goods for instance is long (154). For instance software upgrading a company may be done once or twice in five years and even longer in the case of domestic consumers. Therefore every time the purchase is done, sellers employ all tactics to maximize the sale.
The success of the pricing strategies discussed above is widely varied. In most cases however, they help firms achieve their objectives. Considering the rigidity and somewhat unpredictable consumer behaviors in free market economies, the pricing strategies are necessary for business that would like to make returns on their investment. Additionally, the strategies come in hand for startup business who would like to curve a niche in markets dominated by big players.
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Mills, Gordon. Retail pricing strategies and market power. Melbourne: Melbourne University Press, 2002. Print.
Tellis, Gerald. Beyond the many faces of price: An integration of pricing strategies. Journal of Marketing, 50, 146-160.