Pricing Decision & the Marketing Strategy Essay
MBA 5005 – Marketing Management 1. Why is the marketing strategy so important to the pricing decision? Can you think of some examples in which the strategy and the price appears to be inconsistent? The decision process required to set prices takes into consideration various factors. According to (Winer & Dhar, 2011), these factors are marketing strategy, customer perceived value, competition and costs. This brief analysis will focus on the effect that one factor, marketing strategy, has on the pricing decision.
A marketing strategy has many components but the ones which affect the pricing decision are the core strategy, value proposition, brand positioning and customer targets. These components do not dictate the actual price but instead determine whether the price is high or low. Marketing managers must use the data from the marketing strategy to identify their target audience and further identify segments in the markets.
Once this is done then price sensitivity of the various targets would be taken into account when the pricing decision is being made. Prices would then be set based not on the actual cost of goods but the value that consumer has placed on the product and the core objectives of the brand/product. The pricing decision must be reflected in the marketing strategy employed. Breaking the market into segments allows the marketing manager to develop targeted marketing plans and pricing structure.
Price discrimination which is defined by Winer & Dhar as the practice of charging different prices to segments of the market according to their price elasticity or sensitivity, is a direct result of the ‘consumer targets’ segment of the marketing strategy. It allows for prices to be set based on how much the consumer is willing to pay and the value of the brand in the consumer’s eyes. Price can also be set based on the positioning of the brand in the market.
In a market where competition is high, a company may choose to position its product as the affordable alternative and set the price accordingly. Conversely, the product cut be placed at the higher price point to add a level of prestige to it within that category of goods. Some companies actually do this by creating a product variant which would have different price bands. These price bands would then appeal to different target markets although they are within the same product category.
An example of this would be Toyota’s development of the Lexus brand as a luxury alternative to the higher priced Mercedes and Cadillac brands. (Toyota) Toyota saw the gap in the luxury vehicle market and saw where they create a product and positioned as the best choice for the persons who were more price sensitive but still value-conscious. One can conclude that the pricing decision is influenced by the marketing strategy in that the core objectives of the company along with the consumer targets, brand positions and value proposition are significant factors which determine the price of the product.
In Jamaica, a common example of a product where the marketing strategy doesn’t match the price is the housing sector in Jamaica. Most housing developments tout themselves as affordable options for low-income Jamaicans. The reality is that the prices are not usually reflective of this as the houses/apartments are usually priced for consumers who are more price elastic rather than the price sensitive demographic they aim to capture.