Pricing strategies generally fall into one of two groups: cost-based and market-based. The market-based approaches tend to focus either on the competition, customer demand, or both. There is no one best price to charge for a given product. Once the need to set or change a price has been recognized, the manager must determine what he or she is trying to accomplish with this particular price. The answer might seem obvious: to sell more products or services. But this response is too general, and may not even be the case. In fact, companies can have a number of different pricing objectives (Morris,G. & Morris, M, 1990).
There are various pricing objectives. This includes penetration pricing, skimming, investment pricing, pricing for stability and competitive pricing. Among the different pricing objectives there are three that can be given consideration. This include penetration pricing, pricing for stability, and competitive pricing. These 3 are considered due to it giving more notice to clients and competitors. The clients and pricing go together. Clients depend on pricing for what product to buy. A company needs to have more clients to increase its income and improve its market status. Pricing affects competitors. When one company increase prices others follow so they won’t lose clients. Competitors can base their products on another companies’ price. When a products price is too low a competitor may have no choice but to cease to match a company’s price thus advantages can be acquired.
Among the different Pricing objectives penetration pricing is the one chosen. Penetration pricing is a market strategy whereby a company initially sets a low price, in order to gain a market share in a mature market by persuading customers to try the product. Penetration pricing is often adopted when a firm launching a new product expects its competitors to launch similar products. A company can then build up market leadership by being first in the market (Lazer, 1971).Penetration pricing refers to the establishment of price levels low enough to penetrate markets deeply, and to discourage potential competitors from entry. Although prices are set relatively low, expanding markets arc recognized. Pursuit of this policy slows down the recouping of investments and expenses. Which policy to use depends on the total marketing plan and an assessment of cost-revenue market factors (Lazer, 1971).
Penetration pricing was chosen because with it a company can give its attention on two things namely clients and competitors. Through penetration pricing companies can satisfy consumer wants of buying products that costs less. Through penetration pricing, more clients will avail the companies’ products and they can become more popular to clients. Through penetration pricing prevention of new competitors can be made thus the company can have lesser worries about competitors. Although penetration pricing can bring good to the company it causes problems. One disadvantage is the value of the product is lowered. A product’s value maybe ignored in this pricing objective just to make sure that the wants of the clients is satisfied and no new competitors can enter the market.
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