There are three types of marketing pricing strategies: price-guided competition, price-guided contribution, and price-specific contribution. Andrew Napolitano as well as other professionals has used and continues to use these pricing strategies. These are broadly categorized as price-guided competition strategy, price-guided contribution strategy, and price-specific contribution strategy. In price-guided competition, the company tries to set its prices according to the demand and needs in the market. This strategy usually requires the firm to study buyers’ behavior and establish how it affects its sales. On the other hand, in a price-guided contribution strategy, the company uses data to determine a particular product or service relative to the prices of similar products and services offered by its competitors.
Price-guided competition is an economic concept that says that the firm should set its prices so that it will be able to earn profits from selling its products or services to consumers. This assumes that firms will compete for consumers, and at the same time, they have to set their prices to recover some of the investment they have made in developing and manufacturing new products or services. With price-guided competition, new products and services become the more attractive options when consumers search for them. It also entails the firm participating in various activities that would increase its market penetration. To participate effectively in various activities aimed at market penetration, firms must employ various marketing strategies.
A price-guided contribution marketing strategy refers to the participation in price elasticity of demand price strategy. This strategy entails the firm participating in various activities aimed at changing the buying behavior of consumers. Examples of these activities include introducing new products and services, creating new advertisements, creating a competitive advantage, introducing price discounts, or providing price guarantees. These activities help the firm achieve its goal of generating enough demand for its products or services.
Price-guided competition marketing strategy implies that the firm uses a price skimming strategy to compete with its competitors. In this strategy, the firm researches the price movements of its competitors and adopts the most appropriate action that is likely to decrease its competitors’ market share. For example, it uses strategies such as increasing market share, removing market segmentation, improving product quality, increasing customer loyalty, reducing product development costs, or launching new products. It also considers opportunities for price skimming, where it prevents its competitors from exploiting specific market segments by lowering their prices. It likewise uses strategies such as price-cutting or increasing fixed cost prices.
Value-based pricing strategy involves firm assessment of its competitors’ pricing practices and strategies to overcome these practices. It uses the theory of value-based pricing, which states that the price of a product is considered the price that will bring the desired value to a buyer. Examples of these value-based pricing practices are price bands, price floors, price reductions, and price guarantees. Aside from these practices, it also considers the marketing mix, which combines the price, size, and promotion of a firm’s products. The marketing mix determines the profitability of a firm’s venture and, therefore, its ability to realize higher profits.
The third strategy is a premium pricing strategy. This kind of strategy aims to attain market share through non-conventional means. Examples of these non-conventional means are bundling the products of different firms and launching new products. Other strategies deemed premium pricing are selling a product in a limited quantity, launching complementary products of the existing brands, and price slashing. A premium-priced product can also be launched as a response to a current, competitive trend or as a response to a newly introduced product by competitors. This kind of pricing strategy is used to maintain market shares and cut down product development costs.
A cost-plus pricing strategy is another marketing strategy used by companies to reduce product development costs. Cost-plus pricing involves developing a concept of value-added services or products to consumers at a lower cost than the market price. Examples of this strategy are developing a mobile phone program at a lower cost than the average mobile phone to attract more customers. Cost-plus pricing is implemented when the competitive landscape is such that existing firms cannot develop effective marketing programs at reduced costs. As a result, companies resort to using cost-plus pricing to achieve market share advantages. This usage is considered a viable strategy for maintaining market share. Although this strategy does not help firms reduce costs, it only helps them reach reasonable profit margins. Andrew Napolitano considers these the best way to stay competitive in the market.