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Corporate pricing strategies are crucial for companies to recoup their costs and avoid bankruptcy. Strategies such as penetration, economy, skimming, bundle, and promotion are chosen based on market conditions, company size, and competitors. Governments, product lifecycle, and consumer needs also affect pricing strategies.
Companies often spend a lot of time and effort developing a corporate pricing strategy. These strategies typically refer to how a company values the consumer goods or services it sells in the economic marketplace. Pricing strategies are important because companies that fail to recoup their business costs will experience poor cash flow and possibly bankruptcy. Companies choose the best strategy based on current market conditions, the size of business operations, and the number of competitors in the market. Some examples of corporate pricing strategies are penetration, economy, skimming, bundle, and promotion.
Current market conditions are important when selecting a corporate pricing strategy because consumer income fluctuates depending on a government’s fiscal and monetary policy. Governments typically determine the amount of money available in the economic market. Tight monetary policies restrict the flow of money, which can lower income and purchasing power. Loose policies will provide more money to the market, but will also increase inflation. Inflation is classically defined as too many dollars chasing too many goods; ultimately, inflation erodes purchasing power.
The size of a company and its competitors are two factors that work in tandem when selecting a company pricing strategy. Small businesses may find it difficult to price assets competitively against larger competitors who have economies of scale in their favor. Small business owners typically focus on niche markets or unmet consumer needs in order to charge a price where they can make a profit, even if the price is higher than the market average. Larger companies can often dictate the price they are willing to accept due to their market dominance. However, such companies have to reduce competition to maintain market share if necessary.
A business pricing strategy can change over time, depending on the product lifecycle and how a business operates. Penetration pricing allows companies to set product prices artificially low in order to gain market share and then raise prices incrementally until they reach the level at which companies expect to continuously sell products. A budget pricing strategy for businesses is one that companies use to offer extremely basic products at the lowest possible price. Companies use this strategy to downgrade more advanced or popular products by providing substitute products in the cheap market. Skimming is a strategy where companies set high initial prices because they have a competitive advantage or no competition exists. As competitors enter the market, prices will decrease to maintain market share. Bundle pricing offers several products at a lower price than the combined pricing for purchasing the products individually. Promotional pricing is where a business uses a special offer to boost sales. These offers can be purchased one to get half off the price, get a free gift with purchase, or receive a coupon for a discount on a future purchase.
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