Pricing can be defined as the assignment of value or the cumulative amount of value that a customer must exchange in order to receive a particular product or service (Gerth, n. d. ). For marketers, pricing can be viewed as a single strategic tool that can translate a potential business entity into reality (Abratt & Pitt, 1985). On the same notion, Avlonitis & Indounas (2005) noted that pricing is the only element of the marketing mix that can bring revenue for the organization with the remaining elements associated with expenditure.
Factors affecting pricing strategies One of the factors affecting pricing decisions is the pricing objective(s) of the firm. Organizations need to clearly spell out their pricing objectives before settling for a particular pricing method. These pricing decisions, however, are so complex that organizations may pursue more than one objective. Avlonitis & Indounas (2005) classified the pricing objectives into quantitative and qualitative ones. Quantitative objectives are related to sales, profits, costs and market share.
Qualitative ones, on the other hand, are related to the relationships with customers, competitors, etc. Thus the pricing objective of the firm has a huge bearing on the final price to be charged for the specialized electronic product. Critics of the quantitative pricing objectives, however, have noted that maximization is difficult to achieve in reality. As discussed by Kotler & Keller (2011); despite the freedom organizations have over their pricing decisions, except for producers of utility products that may be regulated, marketers need to understand the effect of their price on demand.
The consumers’ perception about the product category (normal/prestigious) is vital in explaining the effect on demand. For instance, if the specialized electronic product is perceived as a normal product, the demand tends to decrease with any increase in price. The price- demand effect is quite different if the product is perceived as a prestigious one (Gerth, n. d. ). Customers tend to view prestigious products as being more valuable, as a result the demand tends to increase with increasing prices. However this is only up to a certain point then the demand will begin to decline.
The price elasticity of demand is another factor to consider. For example, if the specialized electronic product is still in limited supply then changes in prices don’t have much effect on demand i. e. inelastic. In such instances, an organization can afford to charge high prices. Kotler & Keller (2011) cited the example of Sony who charged $43 000 when their new HDTV was introduced to the Japanese market in 1990. Three years later, the price had dropped to $6 000. The cost of producing the product is also important in determining the price.
According to Kotler & Keller (2011), the product costs set the lower limit of the price to be charged whilst the demand determine the upper limit. A number of studies e. g. Avlonitis & Indounas (2005) & Abratt & Pitt (1985) showed that the cost-plus method is the commonly used method. Despite being simple, its failure to consider market conditions and the competition has been criticised by some researchers. Consumers tend to place value of a new product on the price being charged by competitors who produce an identical one (Gerth, n. d).
Thus a firm needs to evaluate the competitors pricing strategies prior to coming up with a pricing decision. Ideal pricing method for the new specialized electronic product If I may assume that the product is new to the market without any industry price norm, I think the skimming pricing strategy is the best. This will enable the organization to charge premium prices during the introductory stage of the product life cycle with an aim to reduce the prices as new competition enters the market. The example of Sony described above is also applicable here.