The 4 Phases of Strategic Pricing: A Comprehensive Guide

Posted on May 17, 2024 in Economy

The 4 Phases of Strategic Pricing

Phase 1: Research Factors that Determine Price

• This phase involves studying the key factors that influence the selling price, such as cost, demand, and competition. These factors provide the foundation for subsequent decisions.
• Determining factors for price setting are referred to (costs, demand, and competition).

Phase 1: Pricing Methods

Pricing based on:

1. PERCEIVED VALUE AND DEMAND (21.5% of Spanish firms)
2. COMPETITION (25.6% of Spanish firms)
3. COST (PYME’s in Spain >51.9%)

The choice of a particular method depends on:

• Type of the product (consumption good or industrial good)
• Difficulties and obstacles in the implementation.

Phase 2: Set Objectives of Your Pricing Policy

• In this phase, pricing objectives are established, and prices are set to achieve those objectives. This phase complements the first one, as objectives are based on the information gathered about pricing factors (the second phase builds upon the information provided in the first).

Phase 3: Incorporate Pricing Strategies

• After objectives are defined, pricing strategies are incorporated. These strategies help generate a range of potential prices that align with the objectives set. This step is added once the objectives of the pricing policy are established and prior to setting prices based on those objectives. At the end of this third phase, a set of prices that are possible alternatives is generated.

Price strategies define the process to achieve the objectives of the pricing policies.

Application of specific pricing techniques to achieve the company’s objectives.

Possible pricing strategies:

• Pricing depending on the product life cycle (pricing variation for the introduction, growth, maturity, and decline stage)
• HI-LO pricing (High-low pricing is a pricing strategy in which a firm relies on sale promotions to encourage consumer purchases. It is a pricing strategy where a firm initially charges a high price for a product and then subsequently decreases the price through promotions, markdowns, or clearance sales.)
• Low-cost model (a company offers a relatively low price to stimulate demand and gain market share.)
• Price discrimination (a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to. In pure price discrimination, the seller charges each customer the maximum price they will pay.)
• Dynamic pricing (a pricing strategy that applies variable prices instead of fixed prices.)

Phase 4: Select the Selling Price

• The final phase involves choosing the actual selling price. This must be done with all the information obtained from the preceding parts of the process while taking into account that there are laws that restrict the possibility of using certain prices (legal constraints that may affect pricing options).

Price Adjustment

Possibilities to adjust the price:

• Modify the amount to be paid by the buyer.
• Modify the quantity of the product (or service) delivered.
• Change the commercial conditions (depending on the quantity purchased).
• Vary the product quality (or service quality).
• Change the components and complementary services offered.
• Modify the payment method and terms.

Pricing Objectives and Customer Perceived Value

1. When setting prices, a leading manufacturer of nutritional supplements decided to institute a pricing strategy that would support a five percent increase in sales over the next 3 years. What type of pricing objective had two companies set?
   1. Profit
   2. Sales
   3. Competitive effect
   4. Value
2. _________ is the sum of all the values that customers exchange for the benefit of having or using a product or service.
   1. Salary
   2. Profit
   3. Price
   4. Cost
3. Customer perceived value is:
   1. The difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives.
   2. The sum of the physical attributes of a product.
   3. A standard price against which consumers compare observed prices.
   4. All answers are correct
4. Possible referent points used to establish the reference price include:
   1. Frequently set price, price of complement products, the last price paid
   2. Frequently set price, the last price paid, the price of the brand usually purchased
   3. Frequently set price, price of complement products, the price of the brand usually purchased
   4. Expected price, price of complement products, the last price paid
5. As a result of the ______, Tom decided that chocolates priced at 2.50€ could not be nearly as good as chocolates priced at 9.50€.
   1. Assimilation effect
   2. Contrast effect
   3. Fair price effect
   4. Reference effect

6. Differential value can be explained as:

1. The value to the customer (both positive and negative) of any differences between your offering and the reference product

7. For products such as _______, a price hike may actually result in an increase in demand.

1. Louis Vuitton handbags

8. How is the price elasticity of demand calculated?

1. Dividing the percentage change in quantity demanded by the percentage change in price

9. When the demand for a good is inelastic and its price increases, the total revenue from the sale of the good will

1. Decrease