Every company aims to make a profit through sales. Determining how to price the commodities takes more than just determining the cost. How the customers value the product in relation to price determines whether they will purchase the product or not. Value-based pricing is an intervention that has been adopted by some business. It is used to figure out the extent to which the customers value the products or services. This paper will discuss various pricing strategies and their effects on the perception of quality in the consumer's eyes.
Competition in business has risen in recent times. By reducing prices, companies believe that this will increase their perceived value to customers. Due to the intense pressure to lower price, business entities are cutting the price of specific commodities or offering appealing discounts. After such an intervention, the customer may start doubting the quality of the commodity that is sold at a relatively low price. The high price of the same commodity is likely to attract more customers. Premium pricing, also called prestige or image pricing is used to create the perception that a certain commodity has better value in the market than others that serve the same purpose to the customer. In this intervention, a commodity is priced at a higher level than the competing goods or services. This will create a perception that the commodity has a higher value than others simply because it has a higher price. It is thought that commodities that have higher production value have better quality since more resources are channeled towards improving the quality (Spann, Fischer, & Tellis, 2015). The main advantage of this strategy is that it results in higher revenue; however, vigorous brand marketing is required.
An example of premium pricing is common in petrol pricing. Despite different companies obtaining their product from the same oil refinery, some companies have placed a relatively higher price. This has created the perception that the higher priced fuel has a higher quality and is good for the customer's vehicle than others.
Price skimming is another form of strategy where commodities have higher introductory price owing to its uniqueness and the virtue of being new in the market. The price is lowered over time as new products enter the market. This form of pricing not only helps to recover the initial cost, but also creates a perception that the product is not just premium, unique and first in the market and thus perceived as a better product than the competitors that are regarded as copying the initial product (Ashraf, Li, & Mehmood, 2017). This type of strategy is used by some mobile phone manufacturers such as Apple that introduces their products at a higher price and lowers over time. By the time the price is lowered competitors will have joined the market, but the company would have created an appealing perception about their product which will be regarded as the first and best in the market.
Pricing strategy is crucial in business. The intervention determines the sales of a commodity that subsequently determines the overall sales and profit. It is essential for business entities to consider the best strategy to result in higher sales. Lowering price does not always attract customers. In some instances, the higher price may create the perception that the product has better quality than the competitors.
Ashraf, S.F., Li, C., & Mehmood, B. (2017). A Study of premium price brands with special reference to willingness of customer to pay. International Journal of Academic Research in Business and Social Sciences, 7 (7), 619-639. DOI: 10.6007/IJARBSS/v7-i7/3126 URL: http://dx.doi.org/10.6007/IJARBSS/v7-i7/3126.
Spann, M., Fischer, M., Tellis, G.J. (2015). Skimming or penetration? Strategic dynamic pricing for new products. Marketing Science, 34 (2), 179-307. https://doi.org/10.1287/mksc.2014.0891.
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