Pricing Strategies Definition

The main aim of the management of every organization is to maximize profits by

effectively getting the products off the shelf; let’s define and explain this better.

A pricing strategy is finding a competitive price for a product or a service. This

strategy is combined with the other marketing pricing strategies: the 4P strategy

(products, price, place, and promotion), economic patterns, competition, market

demand, and product characteristics.

This strategy is one of the most significant ingredients of the marketing mix because

it focuses on generating and increasing revenue for an organization, ultimately

making a profit for the company. Understanding the market conditions and the

consumers’ unmet desires, along with the price that the consumer is willing to pay to

fulfill his unmet desires, is the ultimate way of gaining success in the pricing strategy

of a product or a service.

What Are The Types Of Pricing

Strategies?

1. Cost-Plus Pricing Strategy

One way to price a product is to add a fixed percentage to the manufacturing costs for
each unit. This pricing technique is known as “cost plus” or “markup pricing.”
As a seller, you would calculate the fixed and variable expenses incurred in making
your goods and then apply the markup percentage to that cost. This approach is
popular since it’s simple to defend and almost always results in a level playing field
for all participants.

2. Competitor-Based Pricing Strategy

Competitive pricing is the practice of setting your product or service prices based on
the pricing of your competitors in your market or niche rather than on your company’s
costs or desired profit margins. Sometimes this means just raising your prices, but you
also can offer better terms of payment as an alternative.

Recommended Reading: How to Run a Competitive Analysis to Best Understand

Your Market

3. Value-Based Pricing Strategy

The method of determining your rates, known as value pricing, considers how much
your customers value what you provide and adjusts your prices accordingly. You must
employ a marketing mix to retain sales and deliver more value to your clients in the
face of increased competition or a recession.

Due to the perceived worth of the product or service, buyers flock to this price
strategy over the competition. Customers don’t care how much it costs a corporation
to manufacture a product; what matters is that the client believes they are getting a
good deal when they buy it.

4. Loss Leader Pricing Strategy

Loss leader pricing is a marketing strategy where one or more retail goods are chosen
and sold below cost – at a loss to the retailer – to entice customers. Loss leads are
items offered at deeply discounted rates to draw customers into the business.

5. Penetration Pricing Strategy

The penetration pricing strategy aims to draw customers by providing products and
services at lower costs than rivals. This tactic can take attention away from competing
firms and lead to long-term contracts by promoting brand recognition and loyalty.
However, in the long run, brand recognition may lead to higher earnings and help
small businesses stand out from the crowd.

6. Everyday Low Pricing Strategy

Retailers use “everyday low pricing” to maintain perpetually low prices for their items
rather than special promotions or sales.

As a result, the daily low pricing strategy aims to optimize sales by always giving the
lowest prices on the market and anticipating huge sales volumes.

7. Economy Pricing Strategy

Economy pricing aims to get the most price-conscious customers to purchase the
product. Because they don’t have to pay for additional promotion or marketing
expenditures, businesses may price their products according to their manufacturing
value.
8. Premium Pricing Strategy
Businesses that charge premium prices do so because they have a specific product or
brand that no one else can match. Suppose you have a significant competitive edge
and know you can charge a higher price without being undercut by a product of
comparable quality. In that case, you should consider using this technique.

9. Skimming Pricing Strategy

Price skimming is a dynamic pricing strategy businesses use to increase sales of new
goods and services.

Price skimming is a strategy usually employed at a new product’s debut. This strategy
aims to maximize income to the greatest extent possible when customer interest in the
product is strong, and your company faces low competition.

10. High-Low Pricing Strategy

High-low pricing is a strategy where a business focuses on marketing campaigns to
entice customers to make purchases. For example, a company charges a high price for
a product and then lowers the cost through promotions, markdowns, or clearance
sales. A product’s pricing fluctuates between “high” and “low” in a certain amount of
time with this method.

11. Dynamic Pricing Strategy

Dynamic pricing involves charging variable costs depending on who or when you
purchase your goods or service. Flexibility in pricing is one of this technique’s
essential features, which considers supply and demand.

While dynamic pricing is widespread in e-commerce and transportation, it isn’t

appropriate for all businesses. The greatest dangers lay in implementing variable
prices with price-sensitive products and services.

Determines Profitability
Pricing determines the overall profitability of business as it directly
influences the sales volume. It is a key component of marketing mix that
form the basis for generating revenues. A right price is needed for
increasing the sales level along with profitability. Many customers are price
sensitive which frequently change their buying decisions on the basis of
pricing thereby making it crucial aspect for business. Rise or fall in product
prices can be instantly seen in rise and fall of its demand.

Competitive Weapon
Price is major competitive weapon with business to operate efficiently in
today’s highly competitive environment. The pricing strategies are revised
from time to time for countering competition. A market leader dominating
the market always sets price that helps in preventing new competitor’s
entry into market. Price of market leader and other competitors are taken
into consideration by price followers while setting prices. Therefore, due to
presence of stiff competition and in meeting competition, decisions related
to pricing acquires their own real importance.

Regulates Demand
The demand for products is directly influenced by variations in their prices.
Price is main parameter considered by customers while taking decision to
buy product in presence of large competitor’s products. It is strongest
component of marketing mix which plays great role in producing results for
product in market. Demand can be increased by bringing down prices
whereas it reduces with increase in prices. A business should always be
very cautious while using this instrument of marketing mix as improper
pricing can do damage to brand and may defame its products.

Builds Product Image

Pricing also help in building image for product among customers in market.
It is believed by customers those high-priced goods are of high quality and
offers good service in comparison to low-priced goods. Companies also
 use price as tool for positioning their products superior in customer’s mind.
They charge more price for premium range products and less price for
regular products.

Marketing Communication
Market communication is another major importance of pricing. It enables
firm in communicating product value to customers. When product carries
high price, it conveys people about its production quality and overall
expected life. Customers are basically value-driven who wants to maximize
value from given purchase. Expectations of value is formed by them and
accordingly act on it. A price is seen acceptable as long as product is
meeting expectations and value definition of customers at given price point.

RETAIL TRADE
Retail trade is the sale of goods and services available to all buyers in
shopping centers, showrooms, and through Internet services. The most
important point is the implementation of commercial activities. Another
feature is the presence of a certain place where goods and money
exchange takes place, in most cases, it is a store, but when selling products
through the phone or website – personal addresses of customers or
premises where you can place an order.

 Studying customer needs and creating an assortment.

 Informing buyers about the things they buy.
 Encouraging manufacturers to produce specific goods on the basis of
data obtained as a result of research.
 Service and consulting.

etail trade bridges the gap between the producers of goods and the final consumers.
Here's a breakdown of its key functions:

 Selling to Consumers: This is the most apparent function. Retailers buy products in
bulk, typically from wholesalers or manufacturers, and then sell them in smaller
quantities directly to consumers for their personal use.
 Distribution: Retailers act as a distribution channel, getting products from factories
and warehouses to convenient locations for customers. This can involve physical
stores, online platforms, or even mobile vendors.
 Product Assortment: Retailers curate a selection of products that cater to their
target audience. They won't stock every single variation of a product, but rather a
variety that appeals to their customer base.
 Marketing and Sales: Retailers play a role in influencing customer demand. Eye-
catching product displays, promotions, and advertising all fall under this umbrella.
The goal is to entice customers to buy the products they have in stock.
 Customer Service: Retailers provide customer service to ensure a positive
shopping experience. This can include answering questions, helping customers find
products, and facilitating returns or exchanges.
 Feedback Loop: Retailers have direct contact with consumers, allowing them to
gather valuable feedback on products, trends, and customer preferences. This
information can be relayed back to manufacturers to influence future production and
marketing strategies.
 Financing: Retailers often purchase inventory in advance and may provide credit
options to customers. This helps manage cash flow for both the retailer and the
wholesaler or manufacturer.

The way retail trade functions has evolved significantly in recent times. E-commerce
has grown tremendously, offering wider product selection and convenience to
consumers

Channels of distribution features / function

Movement Of Goods
It is important that products move from producers to customers smoothly.
Distribution channels are the one through which business is able to deliver
their products. The place of production and consumption of products are
not the same. It is very important that products move on time and properly
to their ultimate customers.

If there is no proper network for distribution, then these products are lying
useless. Companies will also incur losses no matter how efficiently they are
working. Movement of goods between manufacturers and customers is
important task performed by the distribution channel.

Information Provider
Distribution channels are like communication network between companies
and customers. It serves as the medium through which customers acquires
information about companies. Companies also collect the required
information from the market and its customers through their distribution
network.

They receive all suggestions and complaints from their customers through
this. This all collected information helps businesses in understanding the
market needs better. They will implement the information collected in their
strategies and will aim to improve their service quality.
Negotiation
Distribution channel does the work of negotiating with customers to arrive
at fair deal. Companies do not interact directly with their customers. It is the
intermediaries involved in the distribution network that reaches out to
customers and meet them physically.

They give all detail information about quality, price and various terms and
conditions to customers. Customers interact with these intermediaries and
negotiate for a fair deal. This helps in making the customer happy and
improving their loyalty towards the business.

Contacting Customers
Companies depend on distribution channels for selling their products. They
use various intermediaries for distributing their products among largely
scattered people. It is the role of intermediaries involved in the selling
process to find and contact prospective customers.

Intermediaries meet them personally and try to match the buyer needs with
their product. They motivate the buyer to buy the products. This way they
contact large number of people and aim to increase the sales of
companies.

Storing And Distributing Products

Storing of goods and delivering them according to needs is important role
played by the distribution channels. Intermediaries involved in distribution
network buys goods in large bulk from the producers. These large
quantities of goods are held and stored by them safely in warehouses.

They divide these large stocks by assorting and grading as per customer
requirements. It helps businesses in regulating proper supply of goods in
the market as per the demands. This will increase the customer base and
revenue for business.

Financing
Distribution channel provides proper finance to the businesses for carrying
out these activities smoothly. They ensure a regular flow of funds to the
producers. Intermediaries buys the products from producers in large bulk
and make payment for their purchases. This saves the producers from
blocking of funds in goods till the sale of goods.

When funds are provided timely the company is saved from facing any
financial crisis. Also, the distribution channel aims at reducing the effective
cost of distribution and so that the overall cost of the product can be
minimised.
Risk-Taking
Distribution channel helps to distribute the risk associated with the business
over large number of people. They do all functions of stock holding and
delivering it to ultimate customers. Stocks are accumulated in large amount
by intermediaries and stored safely in warehouses. They handle these
products safely until their final delivery to customers. If any adverse
condition arises in the market, they are also part of the risk involved in
selling goods.

It is their duty to sell these products to people by motivating and urging

them with their skill. Companies are not involved directly in the selling
process. At the time of buying goods in bulk from producers, intermediaries
do payment for their purchases. They take the risk of holding their money in
stock until their final sale to customers.

Marketing Of Products
Marketing of products is very essential to increase the sales of companies.
It helps the customers in getting aware of the company presence and its
products features. Efficient marketing strategies help businesses in winning
the competition and ultimately the loyalty of customers. Intermediaries are
the one that interacts with the customers.

They understand the customer need and accordingly introduce them with
the products. Intermediaries explain customer’s features of products
properly and motivate them to buy it. They also introduce different products
to companies. This way they help companies in marketing their products in
the market.

11 Objectives of Advertising
1) Introduce a product
The most common reason Advertising is used is to introduce a new product
in the market. This can be done by existing brands as well as new brands.
Have a look at the latest IPhone in the market or a Samsung smartphone
and you will find a lot of advertisement for these new products. The objective
of advertising here is to tell customers – “Here is the new product we have
launched”

2) Introduce a brand
There are many startups in the market today and many of them are services.
Services are generally marketed as a brand rather than marketing their
individual service product. Thus, Uber will market its own brand and
introduce that Uber has started servicing customers in a new market. Same
goes for Oracle or Accenture – Companies which market their brand and
their presence in the market rather than marketing an individual product.

3) Awareness creation
According to the AIDA model, the most important job of advertising is to get
attention which is nothing but Awareness creation. Advertising needs to
capture the attention of people and make them aware of the products or their
features in the market.

Also Read Outdoor Advertising - Definition, Importance, Types and Examples

Example – Most of the Bank ads that you see are awareness campaigns.
The ads that advertise the benefits of savings / mutual funds or benefits on
credit and debit cards are all awareness creation ads.

4) Acquiring customers or Brand switching

One of the major objectives of advertising and the first objective of many
advertising campaigns is to acquire more customers. This is also known as
making the customers switch brands. This can happen by passing on
a strong message so that the potential customer leaves the brand which he
is tied up with and comes to your brand.

Example – Most telecom companies launch plans and strategies just to

acquire customers and then advertise these strategies in the market so that
the customer switches brands. There is hardly any differentiation in the
telecom market – thus advertising is a major way to acquire customers. The
Vodafone Zoozoo campaign was just that – Influence the customers and
create passion in such a way that they do brand switching,

5) Differentiation and value creation

A most important aspect of Advertising is to differentiate the product or the
service from those of the competitor. A customer can only differentiate
between services based on the value the firms provides over that of
competitors.
If a competitor is just advertising the features, whereas your firm advertises
the promises and commitments that it will keep, naturally more customers
will “trust” your brand over others. This is the reason that advertising is used
commonly to create value and to differentiate one brand from another.

Coca cola, Toyota, Amazon are some of the most trusted brands in the
market. It is no doubt that these brands are also amongst the top advertisers
in their respective segments. These brands target value creation as well as
differentiation via their advertising campaigns.

6) Brand building
When a brand regularly advertises and delivers quality products and fulfills
the promises it makes, automatically the value of the brand is built. However,
there are many other aspects of brand building. One of the first ones is to
advertise via ATL and BTL campaigns etc.

Brands have different objectives of Advertising. Brands like P&G and HUL
regularly invest funds in building a good brand value for the parent brand. By
doing so, even if one brand is affected, the parent brand is untouchable.

Also Read What is B2B Marketing? A Comprehensive Guide with Strategies,

Examples & Trends in 2023

Recently we observed the problems of Maggi in India where Maggi was

banned completely due to high lead content. However, this did not affect the
parent brand Nestle much and neither affected its other brands like Nescafe
which had done their own brand building and were independent of the parent
brand. This brand was built by good products and constant advertising
towards building brand equity and making a connect with the audience.

7) Positioning the product – Product and brand recall

One of the key factors in the actual purchase of a product is the products
recall and the brand recall at the time of purchase. Amongst the objectives
of advertising, one objective is to correctly position the brand in the minds of
the customer.

Examples include premium brands like Ralph Lauren, Gucci, Hermes or

others which are clearly positioned premium. This position is achieved by
first having a very premium product line which is high priced but it is also
achieved by buying premium advertising and placing the ads in media
vehicles which are very premium.

Besides premium marketing, we can also look at niche marketing. Kent is a

company which has focused all its advertising on its purification capability.
They claim they are the masters of water purifiers. Their repeated advertising
creates a high product and brand recall in the minds of the customers thereby
positioning them as the top purchased brand in the water purifier segment.

8) Increase sales
Naturally, with so many steps being taken to advertise the product, it is no
doubt that one of the objectives of advertising is to increase sales. Many a
times this objective is achieved via advertising. However, if the campaign is
improper or the audience is not targeted properly, then advertising can fail in
its objective.

Nonetheless, there are many seasonal products wherein an immediate

increase in sale is observed due to advertising. The best example is Ice
cream brands which advertise heavily during the summer months because
they know that advertising will immediately influence the sales figures. They
do not waste money in advertising during the winter season at all.

Similarly, you will see many ads of raincoats during rainy season and ads of
winter wear during winter seasons. All these ads are placed to increase the
sale of the product immediately.

Also Read What is the Importance of Writing?

9) Increase profits
With the value being communicated and the brand being differentiated as
well as sales being increased, there is no doubt that advertising can
contribute a lot to increasing profits. Advertising should never be looked at
as an expense or a liability. In fact, it is an investment for a firm just like a
brand is an investment.

Look at the likes of Siemens or Bosch – Brands which have invested heavily
in positioning themselves on the basis of their German engineering. As a
result, today they demand high profits in whatever segments they operate in
or whatever products they sell.

10) Create Desire

Again, referring to the AIDA model, one of the key factors in advertising is to
create a desire for the product so that the customer wants the product.
Brands which are known to do this are BMW, Audi, Harley Davidson, Adidas
and others. These brands are master of advertising where they create so
much desire for the product that the customer absolutely wants a product
even if he doesn’t need it.

There are many stories of Harley Davidson as a brand wherein customers

have saved money for years to buy a particular bike of Harley Davidson.
Same stories can be heard about an Audi or a BMW. A unique example in
this case are the bottles of Absolut Vodka. Absolut Vodka is so famous for
its bottles that there are collectors who desire to collect all different bottle
types of Absolut Vodka. Such desire creation is an effect of advertising +
brand building + the fan following over time.

11) Call to action

One of the most common objectives of digital advertising and digital
marketing is to get a call to action. Brands invest in banner ads, link ads as
well as social ads to get their potential customers to take an action. This
action can be filling up an Email form, clicking on a link, watching a video,
giving a survey or what not.

There are brands which have done ATL advertising and shown half the ads
and then attracted customers to their YouTube channel so that they could
track their viewers and get them to take some action. Call to actions are also
one of the objectives of advertising in which case the actions differ from time
to time based on what the marketer wants to achieve.

Also Read What is Retail Shelving? 10 Tips for Retail Shelving

Here is a video by Marketing91 on the Objectives of Advertising.

The above are the different types of Objectives of Advertising. Naturally, a

firm can have 2-3 objectives for advertising their products or services.
Some of these objectives might be short term like advertising to increase
seasonal sales whereas other objectives might be long term like Brand
building and increasing profits. Depending on the current standing of the firm
in their market, they can choose their advertising objective and come up with
an advertising campaign.

Disadvantages of Personal Selling

In spite of the number of benefits from personal selling, there are some
limitations also. Personal selling, though very useful in selling the goods and
services of the enterprise, cannot be said to be free from limitations.

The main disadvantages or limitations of personal selling are as under:

1. High Costs:

Personal selling can be a costly endeavor for businesses. Maintaining a team

of skilled sales professionals entails significant expenses, including salaries,
commissions, benefits, training, and travel allowances.

limitations of personal selling

Additionally, there are costs associated with organizing face-to-face
meetings, such as venue rentals, transportation, and accommodation for both
sales representatives and clients.

2. Limited Reach:
One of the inherent limitations of personal selling is its inability to reach a
wide audience simultaneously.

Unlike mass marketing techniques such as advertising or social media,

personal selling is a one-on-one or one-on-few approach. As a result, it is
impractical for businesses looking to engage with a broad customer base or
raise brand awareness on a large scale.

3. Time-Consuming:

Building relationships and closing deals through personal selling can be a

time-consuming process.

Sales representatives invest substantial amounts of time in each interaction,

from initial prospecting to nurturing leads and, ultimately, closing deals.

In industries where sales cycles tend to be lengthy, such as real estate or high-
value B2B transactions, the time required to move from the initial contact to a
sale can be considerable. This can hinder a company’s ability to generate
revenue quickly or respond promptly to changing market conditions.

4. Inconsistent Messaging:

Maintaining consistency in messaging and brand representation can be

challenging in personal selling, particularly in larger sales teams or
organizations with decentralized sales operations.

Each salesperson may have their interpretation of the company’s value

proposition or product benefits, leading to inconsistencies in the way the
brand is presented to customers.

These inconsistencies can confuse customers and dilute the brand’s identity.
To mitigate this drawback, companies must invest in robust training, clear
communication of brand guidelines, and continuous monitoring of sales
interactions to ensure alignment with the company’s messaging strategy.

5. Training Requirements:
Effective personal selling demands a well-trained and skilled salesforce.

Sales representatives must possess not only product knowledge but also
proficiency in sales techniques, objection handling, negotiation, and
relationship-building. This training can be resource-intensive, both in terms of
time and financial investments.

Furthermore, ongoing training is necessary to keep the sales team updated

on industry trends, product updates, and evolving customer preferences.
Neglecting training can result in salespeople becoming outdated or losing
their competitive edge.

6. Travel Expenses:

In industries where personal selling involves travel, expenses can escalate

rapidly. Sales representatives often need to visit clients or prospects in various
locations, incurring costs for transportation, accommodation, meals, and other
related expenses.

These travel expenses can strain a company’s budget, particularly if the

sales team is spread across a wide geographic area or if international
travel is required.

Additionally, travel can consume a significant amount of time, limiting the

number of sales interactions that can be conducted within a given period.

7. Dependence on Salespeople:

Companies that heavily rely on personal selling are vulnerable to the skills and
performance of their salespeople. If key sales team members leave the
organization, either voluntarily or involuntarily, it can disrupt existing customer
relationships and impact revenue.

This dependence on individuals can be risky, as it leaves the organization

exposed to fluctuations in the sales team’s effectiveness.
To mitigate this risk, companies often invest in strategies for knowledge
transfer, mentorship programs, and succession planning to ensure the
continuity of customer relationships and sales effectiveness.

8. Difficulty of Reporting at Right Time:

Personal selling can be effective only when the salesman reports at the time
when the buyer is in a position to purchase it is very difficult to know this time
correctly and to report at this time.

Thus, it has been the experience that the proper time of selling becomes a
question.

9. Scarcity of Skilled Salespersons:

Personal selling requires skilled and trained people.

A marketing company may face problems in getting the requisite number of

skilled salespersons to perform personal selling tasks.

10. Difficulty in Measurement:

Measuring the precise impact of personal selling on sales and return on

investment (ROI) can be challenging.
 What are the issues with
personal selling
Unlike digital marketing channels that offer detailed analytics and
tracking capabilities, personal selling often involves qualitative
assessments that are not easily quantifiable.

This difficulty in measurement can make it challenging for businesses to assess

the effectiveness of their personal selling efforts accurately.

Companies may need to rely on proxies such as sales data, customer feedback,
and anecdotal evidence to gauge the impact of personal selling on their
bottom line.

11. Resistance from Customers:

Some customers may resist or be averse to personal selling approaches. In an

era where many consumers value their privacy and prefer self-service options,
unsolicited face-to-face or phone-based sales interactions can be seen as
intrusive or pushy.
This resistance can lead to negative customer experiences and even damage
the brand’s reputation if customers perceive the sales approach as overly
aggressive.

Sales representatives must strike a delicate balance between engagement and

respecting the customer’s boundaries.

12. Limited Availability:

Personal selling often requires coordinating schedules between sales

representatives and customers.

Customers may not always be available for face-to-face meetings due to their
own busy schedules or other commitments.

This limitation in availability can result in scheduling conflicts and delays in the
sales process. Sales representatives must be adept at managing their calendars
and adapting to customers’ preferred meeting times to minimize disruptions.

13. Intrusiveness:

If not executed with care and empathy, personal selling can come across as
intrusive or overly assertive. Pushy sales tactics can alienate potential
customers and damage relationships.

Sales representatives need to be skilled at reading and respecting the

customer’s cues and preferences.

Building rapport and trust should be prioritized over aggressive sales tactics to
ensure that customers feel comfortable and respected during the interaction.

14. Geographical Constraints:

Personal selling is inherently limited by geography. Sales representatives can

only reach customers who are within a reasonable travel distance or reachable
by phone or video conferencing.
This limitation can be a significant drawback for businesses that target
national or international markets.

Expanding the reach of personal selling efforts to distant or remote locations

can be logistically challenging and expensive.

15. Vulnerability to Personal Bias:

Salespeople are human, and their personal biases, preferences, and

perceptions can influence their interactions with customers.

This bias can manifest in various ways, from favoring certain customers over
others to unintentional discrimination.

To mitigate this drawback, companies must prioritize diversity and inclusion

training and cultivate a sales culture that values objectivity and fairness in
customer interactions. Clear guidelines and ethical standards should be
established to ensure equitable treatment of all customers.

16. Difficulty Scaling:

Scaling personal selling efforts can be challenging, especially while

maintaining the same level of personalization and quality.

As a company grows and seeks to engage with a larger customer base,

replicating the personalized interactions that small-scale personal
selling offers becomes increasingly complex.

Businesses may need to explore technological solutions, such as customer

relationship management (CRM) systems and marketing automation tools, to
help manage and scale personal selling efforts effectively while preserving the
quality of customer interactions.

17. Competitive Pressure:

In many industries, the competition is fierce, and rival companies often employ
equally skilled and motivated sales teams. This competitive pressure can make
it challenging for a company to stand out and differentiate itself solely
through personal selling efforts.

Sales representatives must continuously refine their skills and value

propositions to remain competitive.

Companies should also explore other strategies, such as innovative product

offerings or unique selling propositions, to complement personal selling and
maintain a competitive edge.