Next, how strong are current competitors, and what are their current pricing strategies? If the company faces a host of smaller competitors charging high prices relative to the value they deliver, it may charge lower prices to drive weaker competitors from the market. If the market is dominated by larger, low-price competitors, the company may decide to target unserved market niches with value-added products at higher prices. 3 OTHER INTERNAL AND EXTERNAL CONSIDERATIONS AFFECTING PRICE DECISIONS Beyond customer value perceptions, costs, and competitor strategies, the company must consider several additional internal and external factors. Internal factors affecting pricing include the company’s overall marketing strategy, objectives, and marketing mix, as well as other organizational considerations. External factors include the nature of the market and demand and other environmental factors. Overall Marketing Strategy, Objectives, and Mix Price is only one element of the companys broader marketing strategy. Thus, before setting price, the company must decide on its overall marketing strategy for the product/service. If the company has selected its target market and positioning carefully, then its marketing mix strategy including price will be fairly straightforward. pricing strategy is largely determined by decisions on market positioning.
Pricing may play an important role in helping to accomplish company objectives at many levels. A firm can set prices to attract new customers or profitably retain existing ones. It can set prices low to prevent competition from entering the market or set prices at competitors’ levels to stabilize the market. It can price to keep the loyalty and support of resellers or avoid government intervention. Prices can be reduced temporarily to create excitement for a brand. Or one product may be priced to help the sales of other products in the company’s line. Companies often position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Here, price is a crucial product-positioning factor that defines the product’s market, competition, and design. Many firms support such price-positioning strategies with a technique called target costing , it starts with an ideal selling price based on customer-value considerations and then targets costs that will ensure that the price is met. Target costing reverses the usual process of first designing a new product, determining its cost and then asking, “Can we sell it for that?” Thus, marketers must consider the total marketing strategy and mix when setting prices. But again, even when featuring price, marketers need to remember that customers rarely buy on price alone. Instead, they seek products that give them the best value in terms of benefits received for the prices paid.