Effective Pricing Strategies for Businesses

Running head: EFFECTIVE PRICING STRATEGIES 1
Effective Pricing Strategies
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EFFECTIVE PRICING STRATEGIES 2
Do you believe that prices should reflect the value that consumers are willing to pay or
should price primarily reflect cost in making a product or a service?
Prices should reflect the value the consumers are willing to pay which can be viewed as
demand and the cost of input involved in the final product or service. It is the goal for every
business to make a profit at the end of every product or service as their gain. In this case, the cost
of selling the product or service should exceed the cost of inputs to achieve profits. In my view,
prices should primarily reflect the quality value to the consumers. It is the supposed quality
which encourages the consumer to offer a first-class price but not the quality guaranteed by the
business (Hamzaoui & Linton, 2010). Customers set the price range in their mind to provide in
exchange for quality services or products. When a company continually, provide to customers
quality products, the firm achieves their loyalty, and this can be a better scope to premium
pricing of the products which can also generate more than the cost plus the markup price.
Increase in the value of the product is an efficient model to charge a value-based price. There is
an assumption the customers that low rates are associated with low quality. Therefore, charging
lower prices than competitors’ calls for suspicion about the quality of the product despite the fact
that the quality is not degraded. For example, IBM uses premium pricing strategy for their
services and products whose prices are motivated by their brand value. In conclusion, I think that
Prices should reflect the amount the consumers are willing to pay and the cost of input involved
in the final product or service (Steenkamp, Van & Geyskens, 2010).
Which pricing strategies do you think is the most effective? How would you apply them?
1. Pricing at a Premium
In premium pricing, the firm sets costs which are higher than the competitors and is based
on value branding. This model is applied especially when the product is new in the market

EFFECTIVE PRICING STRATEGIES 3
associated with selling of unique products. A business can use premium pricing by first creating
value perception of the product to the customers. The method and appearance of packaging
should attract the customer as well as stock interior decoration to support the premium prices
(Steenhuis, Waterlander & De Mul, 2011).
2. Pricing for Market Penetration
The penetration technique is pricing with an aim to attract new buyers by lowering of
prices on goods and services. Companies use this model to swiftly operate with less struggle
in competition field. The penetration strategies can be applied by an upcoming business
where it offers prices to their products slightly lower than their competitors. Over a time, due
to the increase in awareness of the product, profits can be achieved due to demand. in the
long run, after getting into the market, the entity may choose to increase the prices based on
their cost of inputs.
3. Economy Pricing
Economy pricing is a model of product pricing used by a wide range of businesses
with the aim of minimizing the production as well as marketing costs thus attracting price-
conscious customers. Economy pricing can be applied by discount retailers or food suppliers
who have a sales volume by giving discounts on products or maintain low prices to
encourage more customers.
4. Price Skimming
Price skimming enables firms to maximize sales on new products in the market. This is
achieved by setting high prices on the product in its early phase in the market then lowering the
prices gradually as competition sets in the market. Skimming prices can be applied by starting