Strategic Marketing Basics

The price is at the crossroad of several conflicting forces :

 

On the one hand, as a component of the profitability, you would like to raise it as much as possible. 
On the other hand, as a “sacrifice” for the buyer, you would like to lower it in order to make your product easier to buy and to increase volume sold

 

How can this contradiction be solved ?

 

The only way is to figure out that there is no one single answer.  You must assign priorities to factors that are in line with your strategy. In some cases, prior objectives are linked to sales volume, when, for example, we want to increase or defend a market share. In some other cases, the priority can be the immediate profit generated by the product sales.

 

A good way to link your priorities to strategic thinking is to get back to product portfolio analysis. Consider the BCG matrix  as an example: if your product is a "cash cow" or a "dog", short term profitability is a must. When you look at your "stars" or your "dilemmas", your strategic objectives are linked to market share, thus volume.

 

In cases where volume is the priority, we will choose a pricing method guided by market considerations (market based pricing). In cases where profitability is the priority, we will choose a pricing method that favors the profit margin on each unit sold (profit based pricing).

 

Whatever the method you choose, you will always need to analyze the following factors:

• the customer price sensitivity and market elasticity  

• the competitive offers (as your value proposition is always evaluated in comparison with others)

• the cost position, breakeven point, margins and cash flows

• the overall positioning of the brand, company and value proposition you want to convey