Challenges Ahead

This chapter discusses the future challenges that firms might face in determining and managing pricing strategies in the global markets. It has been argued that international firms are developing new hybrid marketing systems that entail architecture of marketing channels with a focus on optimizing consumer response. Such systems offer larger market coverage and reduced costs, through hybrid grid, a map that illustrates the combination of channels and tasks that will optimize cost and coverage. The author critically examines the current practices in pricing followed by the firms and states that pricing is emerging as a challenge for firms amidst the growing competition in the global marketplace. Companies differ substantially in their approach to price setting, but most of them follow the cost-based pricing, competition-based pricing, or customer value-based pricing. Customer value-based pricing uses information on the perceived customer value of the product as the main factor for determining the final selling price.

Value Creation

The ultimate goal of price value chain analysis is building an organizational capability for developing sustainable response in the market as well as among the consumers. This chapter highlights that the price-value chain is directly associated with the profit and growth of the company that is stimulated by customer preferences on price and brand loyalty. The customer satisfaction is largely influenced by the quality of price, perceived use value of products and services, and the value for money with reference to the prices offered by the firm. Hence, the price-value chain is created by customer satisfaction, perceived use value, loyalty, productive employees of the firm, and competitive advantage in price offerings. Approaches for measuring the customer value as an intangible factor, which has a significant role in influencing the buying decisions is also discussed in this chapter.

Implementation of Pricing Strategy

This chapter argues that the critical task for marketing firms during the market uncertainty, particularly while implementing the changes in the price policy, is to find a new set of organizational practices that will become the basis for managing the next period of competitive growth. Pricing performance is affected by internal and external factors. Internal factors of the organization include work culture, guidance by the managers, and administrative support. The pricing strategies would be more efficient where outcome-based control is used in driving the performance of price in the competitive marketplace. This chapter discusses the process dynamics in pricing and ways of implementing appropriate pricing policies and demonstrates building high consumer value. The discussion in this chapter is woven around the conceptual framework of developing pricing policy and building the overall strategy integration process in a competitive marketplace.

Pricing for New Products

Pricing strategies specify market needs that may be served by different price offerings. The pricing strategies of the company are duly related to market strategies that eventually come to dominate both the overall strategy and the spirit of the company. Pricing strategies deal with matters such as number and diversity of products, product innovations, product scope, and product design. The implementation of pricing strategies requires cooperation among different groups including finance, research and development, the corporate staff, and marketing. This chapter guides managers as to how to manage the concept pricing process for new product development effectively by the customer centric companies through mapping the consumer perceptions about their needs and expected products. In this chapter, the author describes how companies get customer centric pricing strategy, product pricing, and tactical moves in a way that help the firms to get the competitive advantage and build profits in the future.

Price Performance

Strategic pricing is one of the most powerful sources of profits and growth. Yet, in recent years, it has been the least exploited driver of shareholder value. Few manufacturers review their pricing systematically, most set prices reactively. Some extrapolate from history, and for others it is just a hunch. This chapter examines the market structure of information goods and its implications for competitive pricing strategy. It focuses on several approaches to overcoming commoditization: personalizing products and prices and establishing group rates. This chapter argues that price performance is dependent on various interrelated factors in a firm. Most management tools and techniques that are applied in optimizing returns on price have long-term strategic orientation in a firm. Firms need to implement pricing strategies in association with many interrelated factors including the design of the price offerings, employee management, consumer management, and the channel management. The core discussion in the chapter provides an overview for developing pricing capabilities in the competitive marketplace. Major topics discussed in this chapter include enhancing price performance, price sensitivity and sales promotions, price impact on profits, and developing pricing decision under market uncertainties.

Pricing Policy

Globalization has prompted trumping rivals that are tougher than ever in the global marketplace. Incumbency does not help a firm to maintain its market share in the constant turbulence. Firms reinvent strategic directions to predict a distinctive future in the competitive marketplace and determine what strategies, capabilities, and organizational structures are required to lead competition. Many firms serving business markets believe that practicing value-based pricing justifies the value of product offerings and offers a relative advantage to their customers. Price is one of the critical factors to negotiate in the entire process of marketing management. Most firms develop pricing strategies in close association with their customers to convey higher value for money on the prices offered in every transaction. Pricing is used as a critical strategic tool by the firms and drive consumers to fight back against the competing or substitute products by comparing the pricing policies of the firms. Besides the above issues, this chapter addresses developing various pricing strategies including premium pricing, penetration pricing, economy pricing, price skimming, psychological pricing, and niche pricing strategies.

Pricing in Market Uncertainties

The marketing environment for a competitive environment is a combination of factors that are used for pursuing marketing objectives in the identified markets for achieving targets. These factors have to be strategically mixed in the marketing planning for offering quality services and optimizing customer value. It is an integrated approach for promoting the services with a view to expand the area under services market. This chapter discusses the pricing strategies that can support the firms during marketing uncertainties. The author argues that many pricing decisions are driven by judgmental rather than data-rich uncertainties—the rate of demand shifts, the impact of substitute prices, the consumer conflicts on prices offered, or the extent of price war. This chapter also discusses the strategies for niche pricing. It is also illustrated in the chapter that there are three levels of price analysis in reference to competition—a price system, price at an individual competitor’s firm, and industry rival’s price.

Market Pricing

While addressing the price games, this chapter argues that in the price sensitive consumer segment firms drive their profit by applying psychological pricing and zero effects on competitive prices. The zero price effect in reference to the price of a competitor is a phenomenon whereby the demand for a product or service is significantly greater at a price congruent to that of a competitor. The author also addresses an interesting and significant factor affecting the pricing strategies of the firms concerning reactive pricing and price wars. The discussion on the above perspectives in the chapter reveal that historically firms struggling in market competition have taken price for granted, assuming that their main objectives were to cover costs and achieve a target rate of return. Now, companies are adopting more sophisticated approaches. A strategic perspective on pricing includes price objectives, price strategy, price structure, price levels, and price promotions.

Financial Analysis in Pricing

Firms in a competitive marketplace are successful by improving their strategies on pricing and profitability. Consistency of strategy in the product, pricing, communication, and marketing channels yields a synchronized effort, which improves the profitability of the firm. The author argues in this chapter that the most competitive and profiteering firms that emerged as an outgrowth of the globalization in many developing countries are successful not because they have the lowest costs but because they outmaneuver their competitors on price. Deriving the financial analysis on pricing, it is further argued that getting pricing right is always a challenge in a competitive market as growth substitutes, increasing switching behavior of consumers, inconsistency in demand, excess production and supplies, and greater price sensitivity. Besides the core pricing strategies, various financial issues on pricing including mark-up strategies and profitability, pricing models, international pricing fundamentals, and value-chain pricing are also discussed in the chapter.

Price Structure and Levels

It is argued in this chapter that pricing structure is largely affected by the strategies of profit and cost centers that are immensely pushed by the firms to gain advantage over the competitors tactically. One of the pertinent problems in the profit-center structure is it makes it impossible for the firm to consider a product’s revenues and costs separately. Another is the cost accounting system, which is not good for identifying the actual expense of generating additional offerings. Quality of price is referred as value for money from the perspective of consumers. Unwarranted increase in the prices often lowers the value for money perceptions of buyers and chances of quitting the price for the brand increases. The interrelations of price with the advanced marketing-mix of 11 Ps also help in developing the pricing structure as well as setting-up price levels. This chapter examines the strategies to consider pricing structure and levels while preparing a pricing plan. Internal and external factors affecting pricing decisions are discussed, including buyer’s perceptions of price and value, competition, and demand and price elasticity. The chapter also discusses five critical perspectives on pricing comprising price offer configuration, price metrics, price setting process, price value-chain management, and systems thinking in pricing strategy.