What is pricing?
Posted: Wed Dec 11, 2024 4:20 am
Pricing is key to a successful business . In some sectors, pricing too high can mean failure for a company, while in the luxury industry, pricing too low can devalue the product and damage the brand image.
For this reason, one of the compulsory subjects in the Marketing degree in Madrid studies and analyses the management and pricing process to attract the target audience and promote a more sustainable market.
Pricing: What exactly is it?
Pricing is the process of determining the ideal price for offering a product or service on the market . The basis on which the selling price is established is the botim database production and distribution costs, but in practice it is a much more complex process in which other factors intervene, such as supply and demand, competition or customer characteristics.
However, applying the right pricing strategies pays off. The right price can improve product profitability and increase company profits , helping it to face competition more effectively and gain market share. Price is also a form of communication that influences product perception and positioning, helping to preserve brand value .
The most commonly used pricing methods
Cost-based pricing method
This method is often used by small businesses, such as bakeries or hair salons, due to its simple approach, as it only takes into account the internal aspects of the business. It is based on calculating the cost of production of a product by adding the desired profit margin .
Obviously, not only raw material, transport and labour costs are considered, but also fixed costs such as rent or taxes. Although this is a useful and simple pricing strategy, it has the disadvantage of not considering other factors such as competition or consumer demand.
Demand-based pricing method
Also known as dynamic pricing, this is a more complicated method because it takes into account factors external to the business, primarily analyzing consumer psychology and the variability of demand in different market segments.
This method is based on the utility and/or value perceived by consumers regarding a particular product or service, although it also includes factors such as ease of access and added value. In practice, it adapts the sales price to the existing demand and the purchasing power of buyers .
Since prices are not fixed, it is often necessary to use algorithms and digital tools to calculate them on a regular basis. Hotels and airlines, for example, often use this method to set their prices based on customer demand, which varies throughout the year.
Competition-based pricing method
This pricing strategy consists of considering the price that the main competitors have given to a similar product or service, taking into account also its quality. Therefore, the prices of the competition with the greatest weight in the market are monitored with the aim of determining one's own .
Companies using this method can set prices on par with the competition, which is common for high-demand, undifferentiated products such as bread or eggs. On the other hand, setting prices below the competition is often used as a penetration strategy to gain more customers in the market.
When prices are set above the competition, usually due to a higher quality product or excellent service, the aim is to gain brand prestige, quickly recover the investment and/or focus on a public with greater purchasing power. In fact, it is a relatively common pricing strategy in sectors such as fashion or technology.
If you are interested in everything related to pricing methods and other market strategies, you can train with our degree in Marketing in Valencia , also available in the Canary Islands and online .
For this reason, one of the compulsory subjects in the Marketing degree in Madrid studies and analyses the management and pricing process to attract the target audience and promote a more sustainable market.
Pricing: What exactly is it?
Pricing is the process of determining the ideal price for offering a product or service on the market . The basis on which the selling price is established is the botim database production and distribution costs, but in practice it is a much more complex process in which other factors intervene, such as supply and demand, competition or customer characteristics.
However, applying the right pricing strategies pays off. The right price can improve product profitability and increase company profits , helping it to face competition more effectively and gain market share. Price is also a form of communication that influences product perception and positioning, helping to preserve brand value .
The most commonly used pricing methods
Cost-based pricing method
This method is often used by small businesses, such as bakeries or hair salons, due to its simple approach, as it only takes into account the internal aspects of the business. It is based on calculating the cost of production of a product by adding the desired profit margin .
Obviously, not only raw material, transport and labour costs are considered, but also fixed costs such as rent or taxes. Although this is a useful and simple pricing strategy, it has the disadvantage of not considering other factors such as competition or consumer demand.
Demand-based pricing method
Also known as dynamic pricing, this is a more complicated method because it takes into account factors external to the business, primarily analyzing consumer psychology and the variability of demand in different market segments.
This method is based on the utility and/or value perceived by consumers regarding a particular product or service, although it also includes factors such as ease of access and added value. In practice, it adapts the sales price to the existing demand and the purchasing power of buyers .
Since prices are not fixed, it is often necessary to use algorithms and digital tools to calculate them on a regular basis. Hotels and airlines, for example, often use this method to set their prices based on customer demand, which varies throughout the year.
Competition-based pricing method
This pricing strategy consists of considering the price that the main competitors have given to a similar product or service, taking into account also its quality. Therefore, the prices of the competition with the greatest weight in the market are monitored with the aim of determining one's own .
Companies using this method can set prices on par with the competition, which is common for high-demand, undifferentiated products such as bread or eggs. On the other hand, setting prices below the competition is often used as a penetration strategy to gain more customers in the market.
When prices are set above the competition, usually due to a higher quality product or excellent service, the aim is to gain brand prestige, quickly recover the investment and/or focus on a public with greater purchasing power. In fact, it is a relatively common pricing strategy in sectors such as fashion or technology.
If you are interested in everything related to pricing methods and other market strategies, you can train with our degree in Marketing in Valencia , also available in the Canary Islands and online .