cannot be predicted, maintaining the
present price level may be appropriate.
Alternatively, a price change may have an
impact on product image or sales of other
products in a company’s line that it is not
practical to assess. Politics may be another
reason for maintaining prices. has monopolistic control over the market
segments it serves. In other words, when
a brand has a differential advantage over
competing brands in the market, it may
take advantage of its unique position,
increasing its price to maximize its
benefits.
There are three main reasons for lowering
prices. First, as a defensive strategy, prices
may be cut in response to competition.
A second reason for lowering prices is
offensive in nature. Lower costs have
a favorable impact on profits. Thus, as a
matter of strategy, it behoves a company
to shoot for higher market share and to
secure as much experience as possible in
order to gain a cost and, hence, a profit
advantage. The third and final reason
for price cutting may be a response
to customer need. If low prices are a
prerequisite for inducing the market to
grow, customer need may then become
the pivot of a marketing strategy, with
all other aspects of the marketing mix
developed accordingly. Sometimes prices must be increased to
adhere to an industry situation. Of the
few firms in an industry, one (usually
the largest) emerges as a leader. If the
leader raises its price, other members of
the industry must follow suit, if only to
maintain the balance of strength in the
industry. If they refuse to do so, they
are liable to be challenged by the leader.
Usually, no firm likes to fight the industry
leader because it has more at stake than
the leader.
In adopting a low-price strategy for an
existing product, a variety of considerations
must be taken into account. The long-
term impact of a price cut against a major
competitor is a factor to be reckoned
with. In a highly competitive situation,
a product may command a higher price
than other brands if it is marketed as a
“different” product.
Finally, the impact of a price cut on
a product’s financial performance
must be reviewed before the strategy
is implemented. If a company is so
positioned financially that a price cut will
weaken its profitability, it may decide not
to lower the price even if the lowering
price may be in all other ways the best
course to follow.
On the flip side, a price increase for an
existing product can be implemented for
various reasons. First, in an inflationary
economy, prices may need to be adjusted
upward in order to maintain profitability.
During periods of inflation, all types of
costs go up, and to maintain adequate
profits, an increase in price becomes
necessary. How much the price should
be increased is a matter of strategy that
varies from case to case. Price may also be
increased by downsizing (i.e. decreasing)
package content size while maintaining
price.
Prices may also be increased when a brand
Conclusion
a price for a product can be a complex
task to small firms. It becomes extremely
challenging for startups and more so those
in the cut-throat competition dominated
the field. The revenue model and pricing
strategy a firm chooses will impact a wide
variety of aspects to the business such as
the type of clientele the firm deals with
and viability of the business in the long
run. This means deciding a pricing model
is very important for any firm survival.
Geoffrey Sirumba is a Brand and
Marketing Practitioner, currently
working as the Head of Marketing
at Metropol Corporation Limited.
You can reach him via email at:
Geoffsirumba@gmail.com or @
geoffsirumba on Twitter.
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