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B2B Marketing

Pricing Strategy

Pricing strategy is one of the major elements that make marketing efforts fail or thrive.  Pricing is important because it is also related to product positioning.  It affects all other elements of the marketing like the features of the product, the promotions around the item, and other such decisions.  There is no single formula to help a company determine the best price, but there are a general set of steps that can help when developing the price for a new product.

1. Create marketing strategy-do a marketing analysis, positioning, targeting, and segmentation evaluations.

Before a product is even developed, a company will form a marketing strategy.  The price strategy later becomes as important as the positioning of the product in the market.

2. Decide on marketing mix-create a definition of the products as well as its distribution and any promotional tactics that will go along with it.

Pricing strategy options will depend on promotional decisions, marketing elements, the product itself, and many other details.

3. Estimate the demand-understanding how much demand there will be for an item will effect the pricing level.

There is always a relationship between the price of a product and the demand for the item.  The pricing of a product could very well affect the demand and understanding that relationship is important.

4. Calculate the cost of production-use fixed and variable costs that might be associated with the product.

If a company is talking about launching a product, there needs to be a basic understanding of the costs that are involved in making that product, otherwise there may not be any profits incurred.  The total cost of the unit may be based on a bunch of variable costs, but there will likely also be a few fixed costs as well.

5. Understand the environment-take a look at competitors, legal constraints, and other factors on the existing market.

Pricing strategy needs to take into consideration any legal and competitive environments in which the company moves.  The company will need to think about the pricing implications of other competing products.  And, legally, the company is not always free to price a product any way it pleases.

6. Set price ideals-decide on a profit maximization point as well as revenue maximization and even price stabilization ideals.

In order to set the price ideals, the company needs to decide what it is going for in terms of profit.  The profit maximization is the highest amount of profit.  This is not usually a good long term strategy.  The status quo, on the other hand, is a stabilized price that will avoid price wars with competitors.

7. Determine the price-use all of the information collected above to develop the pricing structure along with discounts.

There are four main price strategy options, including:
-Cost-plus pricing-setting the price at the cost of production plus a certain amount of profit.
-Target return pricing-setting the price in order to achieve a certain return on the investment.
-Value-based pricing-setting the price based on the value to the customer.
-Psychological pricing-setting the price based on the price points and what the customer thinks is fair.

Leverage the above pricing strategies to position your products and services for optimal sales.

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Kristine Michaelson

Kristine is a great marketing strategist who has been contributing to MarketingThis.com since our humble beginnings in 2009. She is a great researcher and enjoys writing about multiple B2B marketing channels.

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