Reference no: EM133530999

Assignment: The Marketing Mix and Pricing Strategies

[Topic: The Marketing Mix and Pricing Strategies.] HOST: Once a company has set its pricing objectives, it has to figure out how to achieve those objectives. These decisions form part of the company's pricing strategy. An organization's pricing strategies are likely to fall into three categories - market skimming, market penetration, and price adaptation.

With market skimming, an organization charges the highest possible price for its product. The rationale is that the product will have great value for a select group of consumers, and so they'll pay a high price for it.

Say you develop a new, innovative, and highly engaging product. It's unique in the market, and no one has anything like it anywhere. How would you price this marvel? It's quite likely that you'd charge the highest price that you think you can get.

Market skimming is an effective strategy when customers value a product very highly and consumers in the target market can afford the high price. Sometimes it's also effective because special circumstances surrounding the use of a product justify a high price.

Market penetration as a pricing strategy is used when a low price may be the only way for a company to enter the market and differentiate its products from those of competitors. A low price can help a company penetrate a market and capture market share.

The market penetration strategy is sometimes used by companies to support the sale of other products. In this case, companies offer a product for sale at a price below cost price. Profit is made later by selling add-ons, services, or enhancements for the product - such as a laptop at a reduced price with the option of buying a webcam at an additional fee. The cheap or giveaway product is referred to as a "loss leader." So the product is sold at a loss, but it leads consumers to buy other, more profitable products.

You'd need to check with your legal department or company policies before using this strategy, because sometimes there are legal and ethical concerns to consider.

Market penetration is a good strategy when product differentiation isn't possible, a product can be offered at a low price in order to sell more expensive products, or a low price is needed to establish market presence or dominance.

The third pricing strategy - price adaptation - is a hybrid of the market skimming and market penetration strategies. It involves setting different prices for different market segments. For example, a company may price its products differently in different regions or countries.
Price adaptation is an effective strategy when the market can be segmented and targeted by pricing a product differently, and discounts can be applied to move a product quickly.

Once pricing objectives are set, organizations develop the strategies that enable them to meet these objectives. The three main pricing strategies that organizations use are market skimming, market penetration, and price adaptation.

Read the transcript from the video above and answer the following questions.

Using a product that you regularly purchase as the example (any good or service), write a one-page summary that answers the following four questions:

Question A. What is the company's pricing strategy for the product you chose (market skimming, market penetration, or price adaptation)? Do you think this is the most viable pricing strategy for the product?

Question B. Does the pricing strategy reflect the value? If so, explain the value that you perceive, and if not, explain why you think the pricing does not reflect the value.

Question C. Which potential buyers are likely to be motivated by or dissuaded by the product's pricing and why? Do you think another pricing strategy would capture more market share? Why or why not?

Question D. How much control do you think the company has over pricing while remaining competitive, and what would your recommendation be for either maintaining the same pricing strategy or adapting to another pricing strategy?