Price targets must fit into a company’s marketing strategy, with goals such as creating a buzz, matching competitors’ prices, survival pricing, or skimming for luxury items. The pricing process must ensure a good ROI while remaining competitive.
Price targets are the goals a company hopes to achieve when deciding the cost of its products or services. To be effective, the pricing process must be linked to the overall marketing mix. A marketing mix is known as the 4 Ps: product, price, location/distribution and promotion. Any decisions made about price points, or the cost of goods or services to buyers, must fit into the marketing strategy or plan relating to the value of the product, as well as distribution and promotion expenses. To stay in business, the company must make a profit or return on investment (ROI), but its pricing targets must also be competitive to attract customers.
One type of price target is to create a “buzz” about a company by making the news. For example, a new bread company may base a marketing campaign on the concept of providing quality grain products at low prices to help people during an economic downturn. Since the marketing angle and price objectives would be different from those of the competition, a positioning able to attract the attention of the target market through the results of a unique selling proposition (USP). USPs are strong, persuasive marketing messages that attract large numbers of new customers, providing them with a hard-to-resist reason to purchase that particular brand over competing offerings.
Other more common price targets involve matching techniques. For example, a company’s pricing strategy and marketing communication message to prospective customers might be “We will match all competitors’ prices”. Many companies that use this type of price point strategy add a tag line message such as “Get real value with Smith’s Flooring”. Price matching goals should be based on a solid understanding of competitor pricing as well as the company’s costs and overheads to ensure that good ROI is still realized.
The “survival price” is a target used when a company is not doing well. In this situation, ROI is not factored into the pricing process; rather, just making the business survive is the main focus. Survival pricing can never be used as a permanent marketing mix strategy, only as a temporary means of staying in business.
Skimming is one of the price targets that can be used when a company is targeting customers who are not highly motivated by the cost of a product or service. Luxury items are often priced this way; if the product is “the cream of the crop,” it is deemed to be worth it at almost any price point, as your question demonstrates. This type of price target takes the cream or top value off the market by providing premium, in-demand products to an exclusive target audience.
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