Pricing Strategy

Using Kotler’s Pricing model to review positioning

Also referred to as the nine quality-pricing strategy, since it is a matrix covering nine options, the aim of Kotler’s Pricing model is to help companies position their products or services relative to competitors as perceived by the market, and consider their pricing strategy accordingly.

You can use the Price – Quality Strategy Model to review competitors’ products and services and review their strategies. Why do they charge more? Why do they charge less? Sometimes if aspects of a service are removed, this can contribute to lower prices.

What are the 9 Pricing strategies?

The nine pricing strategies are shown below, relating price against quality.

The summary below reviews the most frequently used strategies based on the different objectives:

1. Maximum current profit objective

A Premium strategy (top-left) is used for this objective. Typically, there are few competitors and a strong brand driving demand, so a higher price can be set.

2. Product Quality Leadership objective

This is the High-value strategy, where a higher quality product is provided and more expensive components are used.

3. Survival objective

This is ‘Buying work’ or dropping the price to gain market share. It is a Good Value or Economy strategy. Often used when customers’ needs change or when competitors move into a market.

4. Maximum sales growth objective

This is a similar low price strategy involving setting a low initial price to capture market share initially, then when the market grows and costs decrease, costs are reduced further.

How can I apply this Pricing model?

When developing new products think of the price strategy before the product is completed.

Ask yourself, what are you trying to achieve? The cost-plus pricing model has long gone as we expect goods and services to be appropriately priced. One marquee hire company I worked with offered high-quality service and a very low price which was a superb-value strategy. It didn’t work. Research showed that potential customers were suspicious and didn’t place orders with them as they thought the product quality was low because the price was low. They raised their prices adopting a high-value strategy and increased sales by 40%.

Developing new products means creating pricing strategies. These might follow the company’s standard strategies, or take a different approach.

When they introduce a new product, such as fans and heaters, these follow the same premium pricing strategy. Be realistic and research perceptions. “If it sounds too good to be true then it usually is”. It’s essential to fit our price to the product’s perceived quality.

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