To decide the marketing strategy, the firm needs to use market mix, which is the tool showing various elements needed to carry out the strategy. It contains four main factors, product, price, promotion and place. Among these four, price is always considered as the most important one because it links between consumers and producers. Most customers want to buy the products at a lower price, so many people think that marketing strategy should be based on minimizing price. In fact, it could vary in different cases.
First, pricing strategy will depend on the product, and it needs to be changed during the product’s life. When the firm wants to introduce a new product into a market, there are two pricing strategies to choose, skimming and penetration. If there are no similar products, then the firm could apply skimming to set a high price. People have to pay high price because they have no other choices if they want to use it. This could make the firm get high profits and cover the initial costs to develop the new product in a short time. But the price should be lower down if it is too high that there are too few customers or other firms enter into this market. On the other hand, if there are similar products in the market, the firm should set a lower price to gain enough market shares. High level of sales could ensure its survival at the beginning. But the price could not be too low, otherwise, there would be two possibilities. One is that the customers may not want to buy its product because sometimes they think that the quality must be very low if the product is too cheap. The other possibility is that more and more customers would buy its product, so it would take too many customers from the existing firms and they have to lower down their prices to make enough sales. This would cause a price war, both sides would reduce their profits through the price war, and it is especially harmful to the further development of the new firm.
Then, when pricing the existing product, a firm needs to determine its pricing strategy according to its objective. If its objective is generating maximized profit in the short run, it needs to set its price at a high level. But this would be successful only when the customers have strong brand loyalty to its product or it is not very competitive in that market. If the firm wants to develop itself in the long run, it has to keep a certain percentage of market shares, so it would lower down its price. But the price should not be too low because a price war might break out unless the firm wants to. Through the price war, the firm could drive the weak competitors out of the business and gain more market shares. It would reduce its short run profit but can improve its strength in the market in the long run.
Also, different products fit being pricing differently, price elasticity of demand, for instance. If the product is price elastic, then cutting the price would reduce the sales dramatically and therefore decrease the profit. But if the firm has a monopoly in that market or the availability of that type of product is very low, which means the product is price inelastic, then the firm should change a high price to maximize the profit.
Besides for different products, the pricing strategy should vary in different markets. In industrial markets, the customers usually purchase for their own productions, so for homogeneous product with close quality, they always only care about the price. But in consumer markets, people buy things for their own enjoyment, price is not the only thing they focus, for some people, they care more about the design, brand and many other factors. As mentioned above, they might not want to buy cheaper product just because they think it would be in low quality, this is called consumer psychology. The best way is segmenting the market and setting different prices to gain maximum profit. Low price is not always the best way.
Besides price, the other three elements of the market mix are also very important. Product is the base of a business, the customers would not buy something they don’t need even it is very cheap. The firm must understand what product is needed in the market. On the other hand, a firm could not produce all types of products, it should determine what to produce according to its assets. A good strategy will link together analysis of customer preferences to the company’s strengths. (Marcouse.I, 1999, p45) Without promotion, there won’t be many people know about the product. If the firm does nothing such as advertising or direct selling, no matter how good that product is, how cheap it is, people can not know it, can not know its advantages, so they won’t buy it. And place, without finding the best outlets to reach customers and the most proper channels of distribution, it is vary difficult for the firm to expand, even the sales can not reach a planned objective and directly leading to the failure of the business.
To sum briefly, marketing strategy is not based on minimizing price. Pricing is important, but it would not be always successful to minimize the price. To determine a successful marketing strategy, the firm needs to consider product, price, promotion and place together based on adequate market research and change its strategy as soon as the situation changes.
Bibliography:
Lancaster.G&Massingham.L, 1988, Essentials of Marketing, Maidenhead, McGraw-Hill
Marcouse.I, 1999, Business Studies, Kent, Hodder&Stoughton
Oliver.G, 1990, Marketing Today,3rded, Hemel Hempstead, Prentice Hall
William.D&Jerome.E, 2002, Basic Marketing: A Global-Managerial Approach,14thed, Maidenhead, McGraw-Hill
