Product pricing must conform to going industry and category levels. However depending on quality, features and benefits, and even a unique selling proposition manufactured through advertising, a product can price itself at the higher range of category pricing.
There are a number of prevailing pricing strategies used in marketing. From product to product, one or more of those pricing strategies may come into play over a product’s lifecycle.
A product that has a demonstrated benefit or attribute over other products in the same category can price itself far above the prevailing pricing rates. Tide laundry detergent is such a product in the laundry detergent segment. Liquid Tide can cost almost 10 times the amount of other brand name detergent products like Arm & Hammer or Gain for the same amount of product. For decades, Tide has made numerous product improvements, and heavy advertising spending communicated its superiority over competitors and justified its position as the pricing leader.
Matching a competitive price is a tactic used by marketers to take the issue of price off the table. This tactic is used by a company that may be stronger competitively on other features and benefits. Price matching puts a competitor on the defensive. The gasoline industry sets price based upon the price of crude oil primarily. However from block to block, there will be price matching and even pricing wars among local competitors.
A product may undercut price with the recognition that it is in a difficult position against a strong competitor and the only way to compete is to lose money on price but make it up on the volume sold. This is known as price undercutting. With this strategy, unit sales volume becomes the measurement of market success rather than dollar sales volume. The goal here is to make up the loss realized from a lower price with growth in unit sales from an attractive price, which creates higher demand and thus higher total dollar volume.
Another pricing strategy is to sell a product at such a low price that the company loses money with each purchase. This strategy is usually a short-term strategy that the product employs to create demand for itself or another company product selling in the same product category. A manufacturer of bread spreads might price its jelly as a lost leader and charge a premium for its peanut butter. The perception by customers is that both products have a good price even though one might be significantly above competitors' pricing.
Close Out and Sale Pricing
This pricing strategy is employed when the goal is to move units of product without regard to price. This is a technique often used by stores that are closing or when new seasonal merchandise is due in the store but current stocks of last season’s goods have not been sold.