FPSC CSS EXAM 2024 – Business Administration – Q.7 – What is price? Explain the major pricing strategies specifically with respect to new product pricing, product-mix pricing, and price-adjustment strategies.
SOLUTION
Price is the value assigned to a good or service, typically expressed in a monetary unit. It’s a crucial factor influencing both customer purchasing decisions and a company’s profitability.
Major Pricing Strategies:
Here’s a breakdown of some key pricing strategies, including their application in new product launches, product mixes, and price adjustments:
1. New Product Pricing:
- Penetration Pricing: This strategy sets a low introductory price to gain market share quickly. It’s ideal for new products in competitive markets, attracting customers and establishing a brand presence.
- Price Skimming: Here, the initial price is high, targeting early adopters willing to pay a premium for the latest offering. This strategy works well for innovative products with limited competition.
2. Product-Mix Pricing:
- Bundle Pricing: This involves combining multiple products into a single package at a discounted price. It encourages customers to purchase more and can help clear slow-moving inventory.
- Freemium Pricing: This offers a basic version of a product or service for free, with premium features requiring a paid subscription. It’s a good way to attract a large user base and convert some to paying customers.
3. Price-Adjustment Strategies:
- Cost-Plus Pricing: This strategy involves adding a markup to the production cost to determine the selling price. It’s a simple approach but may not consider market factors or customer value perception.
- Value-Based Pricing: This focuses on the perceived value customers place on the product or service. Extensive market research is required to set a price aligned with the perceived benefit.
- Competitive Pricing: Companies set prices based on what competitors charge for similar products. This can be a good starting point, but it’s important to differentiate your offering to justify the price.
Choosing the right pricing strategy depends on various factors like target market, product type, brand image, and business goals. A company might use a combination of these strategies to optimize their pricing approach.