Discussion of Pricing Strategies for the Product

Overview

For successful product integration in the market and its competitive performance within the industry, the selection of pricing and distribution strategies has a pivotal role. The choice of pricing approach predetermines the competitiveness of the product and the overall functionality of a company. In a similar manner, the planning of a distribution of a product regardless of its price entails additional costs and might be either beneficial or adverse for the company’s budget, customer needs’ meeting, and competitive advantage. Therefore, it is essential to make verified and balanced rational decisions as per the adequate pricing strategy and product distribution planning at the stage of product launching. This document contains two variants of pricing strategies for the company’s new product with a discussion of their advantages and disadvantages and recommendations for their application. In addition, the document presents an outline of a distribution plan that would meet the goals of cost reduction, efficiency, and successful reaching of target customers.

Cost-Plus Pricing

The first pricing strategy proposed for the launched product is the cost-plus pricing approach. It implies that the price for the products should be based on the immediate costs spent on the production and materials with the additional margin for profit. A cost-plus pricing strategy is an approach when “the direct material cost, direct labor cost, and overhead costs for a product are added up and added to a markup percentage” (Deshpande, 2018, p. 76). Such a method will allow for establishing a relevant price without the risk of cost losses related to competition goals when a price is artificially lowered to reach consumers.

Price Skimming

The second pricing strategy is price skimming, which is commonly applied in the segment of premium class products. This approach to price setting is based on the tactics when “a company sets a relatively high initial price for a product or service at first, then lowers the price over time” (Deshpande, 2018, p. 76). The validation of such an approach is in the categorization of the target market into two layers, the wealthier and the remainder. In particular, at the first stages of product entering the market, the price should be higher than competitors’ to motivate the rich to buy a new product as a manifestation of high status (Deshpande, 2018). In such a manner, the high-income customers will purchase the product first; then the price can be lowered so that the product does not lose its competitive power, and the middle- and low-income consumers might purchase the product for a lower price.

Recommendations for Price Strategies

Both cost-plus pricing and price skimming have their advantages and disadvantages, which might validate the choice of one of them. Price skimming is riskier due to the unpredictability of the product’s competitiveness in the market, which is why the company might lose its loyal customers. On the other hand, cost-plus pricing is limited in its reaching the target market in two waves as the price skimming strategy does. Nonetheless, the added cost for profit margin in cost-plus pricing provides the company with flexibility in price establishment depending on the competitor analysis (Ali & Anwar, 2021). Thus, cost-plus pricing is recommended for the product at the stage of its entering the market.

Distribution Plan Outline

1. Establishing production facilities for product manufacturing at the lowest cost possible with the pursuit of high quality.
2. Finding product routing for the lowest cost to minimize losses and maximize efficiency (Zeddam et al., 2020).
3. Launching advertising campaign in media.
4. Promoting products through social media.
5. Targeting existing customers using discount opportunities.
6. Targeting new customers through diverse channels, such as partnerships, advertising, and other marketing techniques both offline and online.
7. Distribution of the product both in brick-and-mortar and online stores.

References

Ali, B. J., & Anwar, G. (2021). Marketing strategy: Pricing strategies and its influence on consumer purchasing decision. International Journal of Rural Development, Environment and Health Research, 5(2), 26-39.

Deshpande, D. S. S. (2018). Various pricing strategies: A review. Journal of Business and Management, 20(2), 75-79.

Zeddam, B., Belkaid, F., & Bennekrouf, M. (2020). An efficient approach for solving integrated production and distribution planning problems. International Journal of Applied Logistics, 10(2), 25–44.