Use these tips so that the price of your product goes ahead among the thousands of options for the consumer.
By Ricardo Fernández, marketing specialist. Author of the Fundamentals of Marketing and Market Segmentation books , Thomson editorial.
Undoubtedly one of the marketing activities that seems more complex is the establishment of the appropriate price of the product ; However, this can become a simple activity, considering the behavior that the market shows.
The principle that governs determining the price is the calculation of fixed and variable costs , as well as the amount of the expected profit together with the calculation of the investment recovery; but the factor that will determine the price that we will establish in this strategic proposal is that of the competition.
The reality of a globalized world has led companies to significantly modify their competition strategies, including price.
Just 15 years ago, there were no levels of competition in Mexico like the ones we find now. For example, if you wanted to buy a car, you had approximately 25 options considering all existing brands and models; At present there are more than 300 alternatives!
Of course, this absolutely modifies the strategies to be used, and the same applies to almost all products; The arrival of foreign companies has multiplied competition.
Average Market Price
Companies that manufacture similar products within the same category must take special care of the Average Market Price (PPM) , that is, the average price of the same osimilar products.
The calculation of the average price should be done by adding the public price of all the same or similar products of a specific market (taking care that they are products directed to the same segment), eliminating the highest and lowest price and dividing by the total prices that They joined. The result is the PPM, which represents what the market is willing to pay for the product.
1. The high price strategy
A first price strategy is to establish a higher price than the average market price. It is recommended when the product that is being marketed offers benefits and attributes that the other items in its category do not have, being able to tangible or intangible beings.
For example, the men's clothing brand Hugo Boss offers its consumers intangible benefits such as the brand, which is a symbol of status and belonging; This allows an overpricing to be charged with respect to competition.
There are also products that have tangible benefits such as elenvase, some technological innovation, among others.
The really important thing in this tactic is that the product offers the consumer a real and differentiable benefit, only then will it be possible to charge a higher price than similar products and brands in the market.
2. The low price strategy
The low price strategy, that is, a price below the competition average, is a method that must be handled with great care, since it involves significant risks.
The decision to establish a low market price for a product is used in any of the following cases:
- When it comes to a new product and you want to get a quick penetration.
- When the product is in danger of disappearing from the market due to a very aggressive competition.
- As a tactic to curb the growth of competition.
Whatever the case may be, the strategy will allow you to position yourself quickly in the market, however, this can cause problems in the long term, since as the volume of the business increases, it will be necessary to gradually increase the price in order to maintain healthy finances. If the consumer feels cheated, it would be a bad image for the company and the product.
An example we have with the cell phone company Pegaso, sought to compete for price in a niche that was already occupied by Unefon; the result we already know.
3. The average price strategy
This tactic is recommended when the market we intend to address is heavily pulverized, that is, it has a large number of competitors and a group of demanding consumers.
Through this strategy we will have important advantages, and the most outstanding is that we can increase or decrease the price according to the behavior of the market.
This is a viable way to maintain the conditions of a healthy market competition.