Price adjustment strategies are those strategies which are used by business organizations to adjust product or service prices. Business organizations generally correct their fundamental prices to account for different customer differences and altering situations. There are six major price adjustment strategies in marketing which are as follow.
Price Adjustment Strategies in Marketing
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Discount and Allowance Pricing
Many business organizations correct their fundamental price to wages customers for particular reactions like volume purchases, early payment of bills and off season purchasing.
Read More: Product Mix Pricing Strategies with Examples
These price adjustments are referred to as discounts and allowances. These can be of various forms.
The purchasers who pay their bills quickly are given a price reduction in the form of cash discount.
A distinctive example is “2/10, net 30”which means that within 30 days the payment is due but if purchaser will pay the bill within 10 days than he can deduct 2 percent.
All purchasers meeting these conditions must be granted by such discount. These discounts are habitual in a lot of industries and assist to enhance the sellers’ cash conditions and decrease bad debts & credit collection costs.
A purchaser who purchases a large volume is given the price reduction known as quantity discount. A distinctive example may be “$20 per unit for less than 200 units, $18 per unit for 200 or more units”.
All customers should be offered equally the quantity discount without exceeding the cost of sellers economy linked with selling large quantities. Inventory, lower selling and transportation expenses are contained in these savings.
An incentive to the customers is provided through discounts to purchase more from one provided seller rather than from a lot of various sources.
Trade channels members, who do certain operations like storing, selling and record keeping, are given by sellers a discount known as functional discount or trade discount.
Various functional discounts are offered to various trade channels by producers because of the changing services they do. But within the same trade channel the producers should offer the same functional discount.
The purchasers, who purchase products that are out of season, are given price reduction known as seasonal discount. For example, seasonal discounts are offered by lawn and garden equipment producers to retailers during autumn and winter months to promote early ordering in expecting of potential spring and summer selling seasons.
Similarly in slower selling periods, hotels, airlines and motels will offer seasonal discounts. Seasonal discounts permit the sellers to maintain their manufacturing steady during a complete year.
Another kind of reduction from the price list is called allowances. For example, price reductions provided for turning in an old item when purchasing a latest one is referred to as trade-in allowances.
In automobile industry, trade-in allowances are very common but they are also provided for other durable products. The dealers who participate in sales support programs and advertising are provided price reductions referred to as promotional allowances.
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Segmented Pricing
Basic prices are mostly adjusted by the business organizations to permit for variations in products, customers and locations.
A product or service is sold at two or more costs by business organizations in segmented pricing even though the variation in pricing is not based on variations in costs. There are many forms of segmented pricing.
Various customers pay various prices for the same product or service under customer-segment pricing. For example, museums charge less admission for senior citizens and students. Various variants products are priced differently under product-form pricing, but not in accordance with the variations in costs.
Similarly the business organization charges various prices for various places under location pricing, even though the cost of offering product at every place is similar. For example different prices are charged for seats in theaters on the basis of audience preferences for particular locations.
The business organizations charges different prices by using time pricing on the basis of month, season, the day or even hour.
Particular conditions should exist, for segmented pricing to be efficient strategy. The segments should represent various degrees of demand along with the market should be segment able.
Those members of segment that should not be capable to reversed, and who pay fewer prices, and should not be capable to resell the product at increased price. The segment being charged higher price is not suitable for the competitors that are not capable to undersell their products.
Also the cost of watching the market and segmenting should not be higher than the extra profit get from price difference. It is fact that the segment pricing should also be legal.
The real differences in customers’ perceived value should be reflected in segmented prices. Otherwise, the practice will lead to customer bitterness and hostility in the long run.
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Psychological Pricing
Price represents something about product. Quality is judged by many consumers on the basis of its price. For example, a $2000 bottle of perfume may include $500 value of scent, because the price $2000 represents something special therefore many people are willing to pay for it.
Sellers viewed the psychology of prices instead of just economics, in using psychological pricing. For example, one analysis of the link between quality perceptions and price of cars discovered that the customers comprehend increased-priced cars as containing increased quality.
Similarly increased quality cars are comprehended to be even increased priced than actually they are. When customers can evaluate the quality of product by analyzing it or by on the basis of previous experience, they utilize price reduced to evaluate quality.
On the other hand when customers cannot have enough information or skill to evaluate the quality, price become significant quality indication.
Reference pricing is another facet of psychological pricing, in which customers have prices in their minds and they refer to those prices when look at a particular product. The formation of reference prices is based on the noticing current prices, accessing the purchasing situations or thinking past prices.
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Promotional Pricing
Business organizations price their products even below cost and in some cases below their list of price on temporary basis. There are many forms of promotional pricing.
A few products called loss leaders will be placed in super markets and department stores to appeal customers that they may purchase other items whose price is normal.
In order to draw more customers, sellers will too utilize special-event pricing. Mostly cash rebates are offered to customers by the producers who purchase the products from dealers within particular time and these cash rebates are delivered directly to the customers by the producers.
Rebates are common with producers of durable goods, automakers and small appliances, but they are too utilized with consumer-packaged products. The consumer’s price is also cut back by offering free maintenance, longer warranties or by low interest financing by some producers.
The auto industry likes this practice. Or sales are increased and inventory is reduced by sellers by offering discounts from normal prices of their products.
There are adverse effects associated with promotional pricing. When it is copied by competitors and also used frequently, “deal-prone” customers can be created by price promotions that wait until brands go on sale before purchasing them.
Or the value of brand is reduced in the eyes of customers when the business organization constantly reduces its prices. Instead of sweating through hard process of building the potential long term strategies for developing the brands, marketers sometimes utilizes price promotions as a rapidly fix.
A truth is noted by one analysist that price promotions can be downright addicting to both the customer and business organization. Sales are promoted in particular conditions by using price promotions but it become harmful if it is taken as steady diet.
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Geographical Pricing
It should also be decided by business organization that how it price its products for customers situated in various parts of the world or country.
Either the company should take risk of losing the business of much far away customers by pricing them higher in order to compensate the increased shipping costs? Or all the customers situated at different locations should charge the same price?
The supporters of FOB pricing consider that this is the best way to assess freight charges because every customer picks up its own cost. For distant customers, peerless will be an increased cost business organization which is the disadvantage.
The opposite of FOB pricing is uniform-delivered pricing. In uniform delivered pricing, same price plus freight charges are charged from all the customers, regardless of their locations.
At the average freight cost, freight charge is determined. The other advantages of uniform-delivered pricing include it allows the business organizations to advertise its price nationally and it is quite easy to administer.
In between FOB origin pricing and uniform-delivered pricing, zone pricing falls, two or more zones are set up by the business organizations. Single total price is paid by the entire customers lie within one zone and the zone which more far away will be charged more increased price.
Utilizing base point pricing, the seller chooses a provided city as a “basing point” and charge freight charges from that basing city to the location of customers, in spite of the city from which the products are actually shipped.
If same basing point-city is used by all the business organizations than the price competition would be eliminated because delivered prices are same for all customers. Basing point pricing is used by industries like steel, cement, sugar and automobiles for many years but recently this method is not popular.
More flexibility is created by many business organizations by setting up multiple basing points. Freight charges are quoted on the bases of basing point city to the nearest location of customer.
Finally, freight absorption pricing is used by business organizations who like to perform business with certain geographical area or customers. In order to obtain the desired business, the seller uses absorption strategy absorbs full or some portion of the freight charges.
The sellers give reason that by using this pricing strategy its business expands and which results in lowering of its average costs which can more compensate its extra freight costs. For market penetration, freight absorption pricing is used and also to persist in highly competitive markets.
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International Pricing
Business organizations that operate internationally should make decision about their prices to be charged for their products selling in the different countries of the world. In some situations, one uniform worldwide price is charged by the business organization.
Read More: How to Set Pricing Strategy
There are many factors on the basis of which business organization charges its price in certain country like competitive situations, economic conditions, laws & regulations and development of retailing & wholesaling system.
The consumer preferences and perceptions may also changes from one country to another which demand for various prices. Or the business organization may have various marketing goals in different world markets, which need alteration in pricing strategy.
In determining international pricing, costs play significant role. The people who travel abroad are amazed to discover that the products that are lower price in the home country are much higher price in the other countries.
In some situations, so much escalation may consequence from variation in market conditions and selling strategies. In most cases, it is just a consequence of increased costs of selling in the foreign markets which include higher shipping & insurance costs, the extra costs of modifying the product, costs linked with exchange-rate variations, import tariffs & taxes and higher channel & physical distribution costs.
