Know-How Exchange : Strategy

To a large extent, the relevance and permanence of pricing depends on the volatility of the price of your product. If you have a long or longish product development cycle or a long enquiry to order cycle, then there is a need to attempt to have some resilience in your pricing structure – otherwise it becomes very difficult to write a company, financial, marketing and sales plan – never mind work to achieve it.

In addition, there are substantial overheads incurred in the production of price lists and planned promotional materials, should you chose to publish and distribute your prices. So, to my mind, in this case, pricing is part of your strategy and changes to that strategy must be due to a considered reaction to changes in the market or the discovery that your original pricing assumptions were incorrect. After all, in basic micro economics, your price should be set to maximize gross revenue via the price / sales volume curve, adjusted for base-line costs to shift a revenue peak to a profit peak.

Tactics such as promotions and offers on existing and continuing products for, say, a limited period have some value in this regime, but in my opinion, they are fraught with real dangers which are capable of reducing your bottom line in the long term.

When prices go down and are well publicised, few potential buyers will remember that the low price was for a time limited offer. What’s more, they will reason that if you could afford to discount an item in March, when they didn’t have the budget or the need for it, you can still afford to do so in September, when they can put a cheque on your table!

Even if the promotion is for a year-end stock clearance or an end of line offer, the astute buyer will realise that as you’ve made a concession once, you can be persuaded to do it again. The professional buyer, like the buying public has a long memory. If you stick to your guns once the offer has expired, a lot of buyers will realise that the same sort of offer will come around again and unless their need is desperate, they will wait, biding their time until they can obtain a favourable price for an even more up-to-date product with a higher specification.

Unless you have the time and the marketing budget to establish the fact that you stick to your prices and that a promotion is just that (BMW do this very well), the buyers will play you at your own game. Consistency and grit in pricing will allow you to pursue the offer and discount tactic with success, but you will need nerves of steel to make it work.

The internet makes everything even more complex, because unless you have a unique offering, the customer will be able to make many different price comparisons. In your favour, you will not be constrained by the overheads of printed and published price lists.

In this instance, your prices will vary depending on the prevailing competitive climate and the current costs of your products. It may not be a true commodity market, because people are not necessarily buying and selling your products in order to make a profit for themselves on some price difference, but even end users are looking at potential price fluctuations and attempting to purchase at an advantageous part of a cycle, if there is one.

Unless you have a strong pricing strategy, ill thought out promotions can have the effect of turning your products into a commodity where the price travels in but one direction –downwards. The memory of a low price lingers, long after the reason for it has evaporated.

Steve Alker
Unimax Solutions

hi alisons

great response from the experts, specially steve has covered every aspect one can think of regarding pricing and promotion

my 2 cents are....
Pricing is an element of Marketing Strategy, one of the P of the 4Ps. your Pricing strategy relects your marketing stratgy and determines your business success. Based on your pricing strategy you are perceived by the consumers/customers. if you are priced premium, your are perceived in one way, if your priced discount the perception is other way. Price is important becoz the consumers are paying for what you are promising to deliver. if you fail to deliver against that price, they will shun you, if succeed they will repeat use you. Then again please remember pricing alone is NOT a strategy, it becomes a strategy along with the other elements of marketing strategy, the other 3Ps.

promotion is another P, and part of this P is the "offers". how strictly you are developing and implementing your promotion strategy depends on the company as well as the brand and market scenario (pls refer to Steve's BMW example).

remember Promotion is also a process while offer is just a tactical one-shot activity to increase sales, visibility, awareness etc. Offers have finite time frame but the Promotion Strategy is an on-going process during the entire life of the brand.

hope that helps.

cheers!!