Pricing Strategy is a method where goods are strategically priced to achieve a desired sales rate, cover the inventory costs, compete with other stores, and make a profit. The overall objective of conducting a business is to obtain profit from it. Pricing is a crucial strategic weapon in the hand of businesses to improve their profitability and to grow their market value. Pricing is not merely an economic issue. It governs the economic, marketing, technological, psychological, social, organizational and legal aspects of a business.

Price as a marketing instrument is difficult to leverage effectively because it involves integrating decision-making vertically and horizontally within the organization. Consolidating the price of a product depends upon the technology used to produce the product and further research that can be risked for the particular product. Thus pricing, defines the whole brand value of the business.

Pricing has multiple levels of implementation. At the highest level is planning the strategy, which takes into account long-term profit objectives of the organization at brand or franchise level. This level mainly involves the top layer management which governs the overall objectives and principles of the organization. The next layer is tactical management of pricing process, which optimizes price to take into account short-term market dynamics, including demand shifts and competitive effects. The lowest layer is execution level, where SKU-level dynamics and inventory and supply management come into play.

At this level, the stock keeping units manages the stock of products for selling purpose and maintains all the records related to investigate the overall profits that are earned from products under various conditions at diverse locations. If too much focus is placed on strategic pricing, short-term opportunities occurring due to competitive actions may be missed or aggressive campaigns may go unchallenged, leading to expensive market share loss, which may not easily be regained. On the other hand, a myopic focus on tactical pricing will miss the big picture, causing long-term loss of profitability.

The logic behind the pricing technique is as simple as the following relation-

Cost + Profit Margin = Price

In status quo referred in the Indian Self-service scenario as the MRP (Maximum Retail Price).The unit cost of the product sets the lower limit of what the firm might charge, and determines the profit margin at higher prices.

But pricing strategies are as perplexing as hidden truths. Not all the managers understand the pricing environment and process properly to stand winner in the game.  Again, the dynamics of price competition is frequently misunderstood.

Major Issues to be undertaken before deciding the Pricing Strategy

• Increasing pressure on Retailer – The retailer is always under the compliance of market rules and along with has to face a lot of issues including Multitude of SKU’s (Stock Keeping Units), Shorter product life cycles, Faster changing customer/consumer preferences, Reducing customer “loyalty”, Faster introductions of product “killers”, Increased retailer competition, Ever increasing retail channels and customer options, Ever varying product cost structures, Reducing margins.
• Growing Competition in Market- In the neoteric era, with the pace of advancement it poses critical issue amongst leaders of business. Each product available today has its complimentary counterpart available in the market.
• Brand Image- Pricing also impacts brand perception: Too low a price may cause the brand to be perceived as a commodity, whereas too high a price runs risk of being priced out of the market.
• Environmental Factors- A particular product may find a huge market at a certain geographic condition and under other conditions may appear futile. Thus pricing may vary according to geographic conditions. Also, Pricing may depend upon extra travelling tax incurred as overheads on the products by the legal authorities.
• Demand and Supply Curves- According to the changes in the demand and supply curves, the profit earned need to be compensated.

Odd Pricing / Psychological Pricing

• According to a 1997 study published in the Marketing Bulletin, approximately 60% of prices in advertising material ended in the digit 9
• The pricing technique assumes that the consumers ignore the least significant digits rather than do the proper rounding.
• Now that many customers are used to odd pricing, high-end retailers such as Nordstrom psychologically-price in even numbers in an attempt to reinforce their brand image of quality and sophistication.

Pricing Strategies

• Competitive Pricing: Prices set to respond to competitor levels, i.e. they should not be undersold or oversold. The low prices of the commodity may lead to weaken the brand name whereas setting up the high price may lead to loss of customers.

e.g: Surf Excel and Ariel

• Volume Pricing: Volume Pricing technique aims at achieving the copious amount of customers from the market. Costs and margins are kept to a minimum with the goal of achieving high sales and stock turn by pricing below competitors.

e.g: Metro, Wholesalers

• Everyday Low Price: This is an approach where one would buy at the best possible price and hold at a very competitive price continuously, i.e. at little or no promotional discount used. It conveys that the product is available in market at low prices but not the lowest and changing according to the dynamics of the environment. Everyday Low Price strategy accompanies reduced advertising of the products, easier Inventory Management, and lesser stock outs. For regular commodities customers don’t wait for sales to shop. Thus this is an effective pricing strategy as far as daily use commodities are concerned.

e.g: Walmart

• High/Low Pricing: This involves holding higher than market everyday prices and running better than market promotional prices, i.e. – indicating a “major” price reduction. As observed one segment of customers buy during Hi and another during Lo which lay perfect environment for implementing this technique. Sales create excitement and moves items. Quality & better brand image can be restored through this.

e.g: Apparel Retailers

• Cost Plus Pricing: Under this simple approach one can add a predetermined Gross Margin % to all items irrespective of competitor price levels or volume levels.

e.g: Sarvana Stores

Pricing Zones

One set price for a product may not be supported in all regions; retailers need an effective to determine pricing zones. The term “zone pricing” refers to the practice of setting prices that reflect local competitive conditions. It is a collection of stores to reflect market segmentation that helps you create around natural pockets of consumer spending patterns that exist within every geographic area.

Price Optimization

Pricing optimization is the process by which revenue is optimized by maximizing buyers for minimum reduction in price, or maximizing price for a minimal loss of buyers. The setting of prices is an effort to maximize both profit and revenue for an individual item and all associated items. This is a tricky tradeoff, as under-pricing directly impacts the bottom line and over-pricing indirectly impacts market share. The Optimization at tactical level management can be done by using regression models that ignores the simultaneous competitive reaction for changes in pricing techniques for the reason that they impact is very elusive on short term plans. The optimization at low level management can be ensured by employing novel technology for obtaining the desired results. Thus Price Optimization is of crucial importance in the market with the growing competition

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