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Price policy and price strategy

The essence of price policy consists in allocating the offered goods and services with the most optimum economic characteristic which is capable to adapt under continuously changing situation in the market. Price strategy act as practical application of price policy. For development of price policy some stages are provided.
The essence of price policy consists in allocating the offered goods and services with the most optimum economic characteristic which is capable to adapt under continuously changing situation in the market. The price policy is the most important part of the marketing program and provides to the enterprise the following advantages:
  1. Does not demand additional financial investments.
  2. Allows to support other marketing methods of advance of goods.
  3. Stimulates sales by means of the change in price.

Development stages of price policy

Ценовая политика и ценовые стратегии The price policy represents the process of pricing providing achievement of the following purposes: maximizing profit; fixing of positions in the market and penetration into new segments; creation of business reputation of the company.
For development of price policy some stages are provided:
  1. At the first stage it is necessary to decide on the purpose of price policy. This purpose may contain the extensive direction of development of business or small prospects of an exit of the enterprise to new sales level.
  2. The second stage is characterized by internal market researches. Within such analysis the assessment of capacities of the equipment, expenses on compensation, costs of raw materials and materials, costs for transportation of goods and searches of new channels of distribution, costs of the marketing actions stimulating sale, etc. is carried out.
  3. At the third stage market researches of price strategy of competitors, namely, levels of prices for goods analogs, a variation of the prices depending on change of market factors and consumer preferences, flexibility price the politician and features of a choice of price strategy are conducted.
  4. The fourth stage is caused by decision-making concerning by what method retail price for own goods will be defined. The main criterion at a choice of approach to pricing is a receiving the greatest possible profit.
  5. At the fifth stage programs of adaptation of the price to constantly changing market conditions are developed. At this stage the factors influencing consumer demand therefore the price needs adjustment are analyzed. It is possible to carry to such factors:
    • growth of costs of production and salary;
    • need for increase of capacities and attraction of additional labor;
    • general state of the economy, tendencies to crisis emergence;
    • product level of quality;
    • set of functional characteristics of goods;
    • existence of analogs in the market;
    • prestigiousness of brand under which the goods move ahead;
    • level of the income of potential consumers;
    • stage of life cycle of goods;
    • dynamics of development of demand;
    • type of the market.
  6. These factors can be combined with each other and be supplemented with other conditions. The main complexity of this stage is that the majority of these factors cannot be measured quantitatively.
  7. The sixth stage is final as it finishes process of pricing final monetary value of cost of goods.
As result of price policy the price, about adequacy and which correctness the consumer should judge acts. Forming opinion on the price, the buyer analyzes only a ratio optimality between the consumer value of goods and its monetary value.
Before using this or that price policy, it is impossible to ignore the general retail price level in its daily dynamics. This information can be received from statistical reference books, catalogs of other enterprises and other sources.

Content of price strategy

Price strategy act as practical application of price policy and represent making decision on a conclusion to the market of the best price focused on achievement of the greatest level of demand in total with the maximum profit. Price strategy are developed within the predicted interval of time and have some modifications. The existing price strategy can be characterized the following tasks:
  • penetration into a certain market segment;
  • fixing of the developed positions;
  • demand maintenance;
  • extension of life cycle of goods;
  • receiving the greatest possible profit;
  • creation of competitive advantages;
  • development of the planned market niches;
  • formation of consumer demand;
  • payback of costs of production;
  • sales promotion, etc.

Types of price strategy

Ценовая политика и ценовые стратегии For the solution of the given tasks the following price strategy are used:
  1. Strategy of "removal of cream".
    This strategy is applicable generally to the goods novelty which does not have analogs in the market. These goods form unique requirement, to satisfy which only its unique properties and features are capable. Retail price for such goods is established much above prime cost counting upon receiving the maximum profit at the first stage of life cycle of goods. Later the price falls gradually, allowing each category of buyers to acquire new goods, having paid for it so much, their financial opportunities how many allow. Successful realization of the offered strategy depends on level of demand and knowledge of the consumer of advantages which it will get after acquisition of goods.
  2. Strategy "penetrations on the market".
    This strategy is generally applied by the firms which recently entered the market. The essence of strategy consists in establishment of the lowest prices of goods of own production. Such approach often leads to some losses and leaves the enterprise without profit. The main objective of this strategy consists in drawing attention of consumers to goods of this organization and to get loyal buyers.
  3. Strategy of the differentiated prices.
    This strategy assumes development of the non-uniform prices for various settlements and places of sale of goods. Such approach can be caused by the different volume of expenses which the enterprise incurs, delivering goods in this or that point. The prices developed within this strategy are offered to be used in a combination to the stimulating discounts and actions.
  4. Strategy of preferential prices.
    This strategy offers the same goods to different categories of consumers at the non-uniform prices. At such approach it is necessary to consider the level of the income and degree of importance of group of representatives of this or that target audience for the enterprise.
  5. Psychological strategy.
    This strategy means that the price goods is not rounded to the whole value, and leaves after a comma some kopeks. Similar approach allows the consumer to count on receiving delivery, and also to think that such price was result of careful calculations.
  6. Strategy of wholesale prices.
    This strategy assumes reduction of price as encouragement of single acquisition of a large consignment of goods.
  7. Strategy of the elastic prices.
    This strategy considers only consumer financial opportunities and features of consumer preferences on the basis of which the price is formed.
  8. Strategy of the prestigious prices.
    This strategy means establishment of high prices of the goods possessing a special level of quality.

Example of formation of price strategy

Ценовая политика и ценовые стратегии As a practical example we will consider process of formation of price policy in firm "A".
The firm "A" is the intermediary between software developer on a platform 1C and their end user. As the prices of the software are defined by the producer, development of price policy is conducted regarding determination of cost of contracts for technical maintenance of software products. Process of creation of price policy in firm "A" can be presented in the form of the following stages:
  1. Definition of the purpose of price policy.
    Taking into account that demand for service of software products grows, and labor and temporary resources in firm "A" are not enough to satisfy all volume of consumer requirements, the purpose of price policy will be formulated as follows: search of the optimum price of the contract of complex service providing the planned rate of return and constraining excessive demand.
  2. Market researches of internal production capabilities.
    Results of the carried-out analysis are presented in table 1.

    Table 1

    Analysis of capacities of firm "A"

    payment order
    Name of an indicatorUnit of measureQuantitative expression
    1.Expenses on compensationrub.100000
    2.Number of technical support specialistspersons.5
    3.The average time spent for one client (taking into account the road there and back)hour.2
    4.Utilities and communication servicesrub.5000
    5.Calculations with suppliersrub.20000
    6.Business expensesrub.10000
    7.Other expensesrub.15000
    The data in terms of money provided in table 1 in the set make the minimum sum which the firm "A" has to receive every month to cover maintenance costs of the company.
  3. Market researches of price strategy of competitors.
    Results of the carried-out analysis are given in table 2

    Table 2

    Analysis of price strategy of competitors
    Name of rival firmCost of the contract of single service (rub)Cost of the contract of basic service (rub)Cost of the contract of complex service (rub)
    Firm "T"100025004800
    Firm "Ts"50030005000
    Firm "C"80040008000
    The provided data reflect the prices of contracts of technical support which are signed by competitors with the consumers.
  4. Making decision on a method of calculation of the price of own contracts of service and calculation of the final price.
    In view of the above factors, the price of works on the contract of service will be formed by the principle of orientation to big profit.
    The firm "A" has 80 regular customers. The average price of the contract of service makes 3000 rubles. Such approach to pricing brings to firm "A" monthly about 240000 rubles of revenue. This sum covers costs and leaves a profit share on business development. But specialists in technical support do not manage to satisfy need of all clients in time because of what periodically there are conflicts between firm "A" and its consumers.
    For the solution of this problem the decision to increase the price of contracts of service by 40% without change of a range of the services rendered to clients was made. Now the average price of the contract of service makes 4200 rubles. As a result of this action of 15 clients refused to cooperate with firm "A". Now the monthly average sum of revenue makes 273000 rubles that exceeds the previous indicator for 33000 rubles. Thus, the firm "A" received the most part of profit, having reduced time expenditure by customer service, not ready to pay the established cost of contracts of service.
The given strategy reflect the general approach to the practical value of price policy. However, at a choice of the most optimum strategy it is necessary to be guided not only by the tasks set for the enterprise. Sometimes crucial importance in this process belongs to other factors. For example, to consumer demand for these goods.
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