service price strategy

Discuss about the pricing strategy.

Answer: A business can use a variety of pricing strategies when selling a product or service. The Price can be set to maximize profitability for each unit sold or from the market overall. It can be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market. Businesses may benefit from lowering or raising prices, depending on the needs and behaviors of customers and clients in the particular market. Finding the right pricing strategy is an important element in running a successful business.

 

Foundation of pricing strategy 
The foundation underlying pricing strategy can be described as a tripod, with the three legs being named costs, competition, and value to the customer.

Cost: The costs to be recovered set a floor to the price that may be charged for a specific product. Companies seeking to make a profit must recover the full costs associated with producing and marketing a service, and then add a sufficient margin to yield a satisfactory profit.

Competition: The price charged by competitors for similar or substitute products may determine where, within the ceiling-to-floor range, the price level should actually be set. An exception occurs in the case of “loss leaders” designed to attract customers who will also buy profitable products from the same organization.

Value to the customer: The term “value” is one that is rather loosely used. Research by Zenithal found that “What constitutes value—even in a single product category—appears to be highly personal and idiosyncratic.” The net value is the sum of all the perceived benefits (gross value) minus the sum of all the perceived costs. 
In exploratory research on beverages, she found four broad expressions of value;

a.     Value is low price.

b.     Value is whatever I want in a product.

c.     Value is the quality I get for the price I pay and

d.     Value is what I get for what I give.