What I consistently see as one of the main problems companies have when bringing a new product to market is not knowing where to position their product, and so not knowing what pricing policy to implement which best portrays the tangible benefits and intrinsic values of the product to the customer. Having a clear understanding of the proposition you are providing to the customers you have decided best to target and how this proposition benefits them should be one of the core issues for companies when entering new products into any market place.
The two main issues to consider when deciding where and how to position your product should be;
• How are you different to your direct and indirect competitors (Do you provide anything more, added benefits, more capabilities etc)
• What is the buying capabilities/priorities of your target audience (How much do they value what you’re providing, to what lengths would they go to purchase your product, do they have the means to purchase what you’re providing)
Once you know the answer to these questions, you can decide where in the market your product should be positioned, and so using which pricing strategy and via which mediums. Some basic pricing strategies are;
• Budget - Look at Ryan Air, Lidls etc. They offer no thrills basics, but at low prices, aiming for the market of conscientious buyers wary of spending above their means and so willing to sacrifice unnecessary luxuries which would make them feel cognitive dissonance (buyers guilt).
• Competition based - Take into consideration the competition and how much they charge, and keep your prices similar. This is especially important when dealing with commodities with little room for brand building and so no means to distinguish your product from that of your competition. If you raise your prices too high, then the market has no reason to choose your product above that of your competition, and so you will lose a large share of the market. If you lower your prices too excessively you will also be lowering your profit margins, meaning, depending upon your structure and how much it costs to make and distribute your product, even if you sell vast amounts you will still be making minimum profit.
• Premium (Also known as "Skimming") - Look at brands such as Harrods, BMW, Haagen-Daas etc. They charge a premium price because they specifically target an audience that won’t hesitate to pay extra for quality, sacrificing a high number of sales for high profits from specific affluent individuals, and therefore "skimming" the market. If you can position your brand in such a way that people desire it enough to pay excessively beyond its worth, you are looking at a very lucrative pricing strategy. However, if you charge top price for a product which doesn’t meet the expectations of the price then you’ll lose customers quickly and be left with a product you have to discount heavily, taking away the exclusivity and potentially damaging the brand beyond any hope of profitable equity.
• Market Orientated - Undertaking vast amounts of research in order to dilligently evaluate the current marketplace and so set prices according to demand. This is the strategy most likely to enable the company to engage with its audience and so create demand, but is also the most costly and time consuming, seen as relevant and appropriate market research can be resource draining.