Effective Pricing Strategies and Methods for Business

Methods for Fixing Prices

There are three methods:

• A) The cost-based method: Determine the lowest level that can be set for the price. They can establish a profit margin, calculated on an objective and rational basis.
• B) Competition: This can influence price fixation strongly.
• C) The market or demand.

Pricing Strategies

Pricing strategies should help the company objectives and must take into account the type of product, existing lines, competition, and the factors influencing the price, as well as the novelty of the product. As the product becomes more innovative, there will be major price alternatives and sophistication in your strategy. The design of the strategy of the company is an important and complex task, and in its formulation and development, it must take into account the following criteria:

• a) Company objectives.
• b) Flexibility.
• c) Market orientation.

Differential Pricing Strategies

Based upon differential strategies of prices, price discrimination applies a different price based on economic capacity and sensitivity to sociodemographic characteristics of different segments of the market. It can be considered within this group of strategies:

• a) Fixed and variable price strategy: A fixed price implies that the product is sold at the same price and with the same conditions of sale for all customers. Conditions include the form and term of payment and deductions to be applied. A variable price implies greater flexibility in the amount and in sale conditions. The price is subject to negotiation in each transaction.
• b) Quantity discounts: Prices are nonlinear; the quantity discount is a reduction in unit price offered to the purchaser of a product for acquiring a quantity exceeding the normal amount. It applies a nonlinear price which is fixed in function of a specific amount of purchased product.
• c) Cash discount: It is a bonus in the price completed as a cash buyer or within a few days of receipt of the merchandise.
• d) Deferral: This is the total or partial deferral of payment of a purchase and establishes a surcharge or interest on the deferred amount. The purchase agreement is also a means of promotion to stimulate the buyer.
• e) Random discounts: This involves making a reduction of price in times or places without the buyer having prior knowledge of the time in which the discount will be produced. This purpose is to attract new customers, and the benefits they provide exceed the costs of promotion and loss experienced by the sales made to regular customers who had paid the normal price.