Pricing Strategy for Business Markets

Pricing Strategy for Business Markets

Pricing decisions cannot be made in a vacuum because of inherent tradeoffs between other marketing mix elements, pricing will depend on other product, distribution, and promotion decisions.

Pricing can never compensate the poor execution of the other elements of the marketing mix but ineffective pricing can prevent the successful efforts of these in positive financial results.

There is no one best practice for establishing the price of new products or modifying the price of existing products. The firm’s objectives, markets, costs, competition and customer demand patterns must be integrated in every price setting decision.

The role of price for organizational buyers

A price is considered as a function of costs and benefits. The entire product a buying center buys is much more than a physical item. They are buying a given level of product quality, technical service and delivery reliability. There are other influences may be of importance for the buying decisions like the reputation of the supplier, a feeling of security and personal relationships.

It could be summarized into 3 categories:

• Product specified attributes

• Company related attributes

• Salesperson related attributes

Pricing decisions and product policy decisions are inseparable. The buyer sees the cost of a business product as much more than the seller's price.

The evaluation of a product based on benefit- dimensions to value them.

• Functional benefits ( design)

• Operational benefits (durability, reliability)

• Financial benefits (favorable terms, cost savings)

• Personal benefits (individual from a supplier relationship)

Costs are not includes only price, also the transport, any administrative and associate costs.

The Industrial Pricing Process

The decision for pricing an industrial product is a multidimensional ongoing process.

Pricing objects have to be consistent with the marketing and corporate objects i.e. a certain market-roi, market -share goals or beating competition. Pricing objects must be established carefully because of their far reaching effect.

Two main strategies for pricing are Du Pont’s skimming strategy which emphasizes specialty products that carry a high margin and Dow’s penetration strategy focuses first on pricing low margin commodity goods low to build a dominant market share and then on maintaining that dominant share.

Demand determinants can vary a lot in potential demand, sensitivity to price and potential profitability across the market segments. Due to an individual perceived value of a product by each market segment and the evaluation of the cost/benefits tradeoffs the marketer should establish the price strategy. The price elasticity of demand should also be examined and is affected by

• the unique value effect: Features/benefits of a product that makes it unique, thereby lowering the price sensitivity of potential customers and raises consumers' willingness to pay higher prices