7 Reasons to Use Market Oriented Pricing Strategy for Your Business
Market oriented pricing strategy is a method of setting prices based on the demand and supply conditions of the market. It involves analyzing the value that customers perceive from your product or service, and the prices that your competitors charge. By using market oriented pricing strategy, you can optimize your profits, increase your market share, and enhance your customer satisfaction. Here are seven reasons why you should use market oriented pricing strategy for your business.
Key Takeaways
Market oriented pricing strategy is a method of setting prices based on the demand and supply conditions of the market.
Market oriented pricing strategy helps you optimize your profits, increase your market share, and enhance your customer satisfaction.
Market oriented pricing strategy involves analyzing the value that customers perceive from your product or service, and the prices that your competitors charge.
Market oriented pricing strategy enables you to align your prices with customer value, respond to changing market conditions, gain a competitive edge, improve customer satisfaction, enhance brand image, and achieve business goals.
Market oriented pricing strategy requires conducting market research, segmenting and targeting customers, analyzing customer value and competitor prices, setting price objectives and strategies, determining price levels and structures, testing and evaluating prices, and revising and adjusting prices.
1. It helps you align your prices with customer value
Market oriented pricing strategy allows you to charge prices that reflect the benefits that customers get from your product or service. This way, you can avoid underpricing or overpricing your offerings, and ensure that customers feel that they are getting a fair deal. By aligning your prices with customer value, you can also increase customer loyalty and retention, as customers are more likely to buy from you again if they feel that they are getting good value for their money.
2. It helps you respond to changing market conditions
Market oriented pricing strategy enables you to adjust your prices according to the changes in the market demand and supply. For example, if the demand for your product or service increases, you can raise your prices to capture more revenue and profit. Conversely, if the demand decreases, you can lower your prices to stimulate sales and maintain your market share. By responding to changing market conditions, you can also avoid losing customers to competitors who may offer lower or higher prices.
3. It helps you gain a competitive edge
Market oriented pricing strategy helps you gain a competitive edge by differentiating your product or service from others in the market. By analyzing the prices that your competitors charge, you can identify gaps and opportunities in the market where you can offer better value or lower prices. By doing so, you can attract more customers and increase your market share. You can also use market oriented pricing strategy to create a unique positioning for your product or service, such as being the premium or the budget option in the market.
4. It helps you increase your profitability
Market oriented pricing strategy helps you increase your profitability by maximizing your revenue and minimizing your costs. By setting prices based on the market demand and supply, you can ensure that you are selling at the optimal price point that maximizes your profit margin. You can also use market oriented pricing strategy to reduce your costs by optimizing your production and distribution processes, and by eliminating unnecessary features or services that do not add value to customers.
5. It helps you improve your customer satisfaction
Market oriented pricing strategy helps you improve your customer satisfaction by meeting or exceeding their expectations. By setting prices based on the value that customers perceive from your product or service, you can ensure that customers are happy with their purchase and feel that they are getting their money’s worth. By improving your customer satisfaction, you can also increase your customer referrals and word-of-mouth marketing, which can boost your sales and revenue.
6. It helps you enhance your brand image
Market oriented pricing strategy helps you enhance your brand image by creating a positive perception of your product or service in the market. By setting prices based on the value that customers perceive from your product or service, you can convey a message of quality, reliability, and trustworthiness to customers. By enhancing your brand image, you can also increase your brand awareness and recognition, which can lead to more customers and sales.
7. It helps you achieve your business goals
Market oriented pricing strategy helps you achieve your business goals by aligning your prices with your business objectives and strategies. By setting prices based on the market demand and supply, you can ensure that you are achieving the desired level of sales volume, revenue, profit, market share, customer satisfaction, and brand image. By achieving your business goals, you can also grow and expand your business in the long run.
Tips
- Use market oriented pricing strategy to set prices that reflect the value that customers perceive from your product or service.
- Use market oriented pricing strategy to adjust your prices according to the changes in the market demand and supply.
- Use market oriented pricing strategy to differentiate your product or service from others in the market.
- Use market oriented pricing strategy to maximize your revenue and minimize your costs.
- Use market oriented pricing strategy to meet or exceed your customer expectations and satisfaction.
Market Oriented Pricing Strategy: A Guide for Businesses
Market oriented pricing strategy is a method of setting prices based on the current market conditions and the prices of similar products offered by competitors. It is also known as market-based pricing or competition-based pricing. This strategy allows businesses to adjust their prices according to the market demand, the product life cycle, the competitive environment and the company’s financial goals.
Market oriented pricing strategy has several advantages and disadvantages for businesses. Some of the advantages are:
- It helps businesses to stay competitive and gain market share by matching or beating the prices of their rivals.
- It helps businesses to align their prices with the value perceived by the customers and avoid overpricing or underpricing their products.
- It helps businesses to respond quickly to changes in the market conditions, such as fluctuations in supply and demand, new entrants, technological innovations or customer preferences.
Some of the disadvantages are:
- It may lead to price wars and erode profit margins if competitors engage in aggressive price cutting.
- It may ignore the costs of production and distribution and result in losses if the market prices are too low to cover them.
- It may neglect the differentiation and positioning of the product and reduce its uniqueness and appeal to customers.
How to Implement Market Oriented Pricing Strategy
To implement market oriented pricing strategy, businesses need to conduct market research and analysis to identify their target market segments, their competitors’ prices and their customers’ willingness to pay. They also need to consider their own costs, capabilities, resources and objectives. Based on these factors, they can choose one of the following approaches:
Price skimming
This involves setting a high price for a new product that has little or no competition in the market. This allows businesses to maximize their profits in the short term and recover their research and development costs. However, this approach may attract new entrants and reduce demand over time, so businesses need to lower their prices gradually as the product matures.
Price penetration
This involves setting a low price for a new product that faces strong competition in the market. This allows businesses to gain market share quickly and create customer loyalty. However, this approach may reduce profit margins and require high sales volume to break even. It may also create a low-quality image for the product and make it difficult to raise prices later.
Price matching
This involves setting a price that is equal to or slightly lower than the average price of similar products in the market. This allows businesses to avoid price wars and maintain their market position. However, this approach may limit profit potential and differentiation opportunities. It may also make customers more sensitive to price changes and less loyal to the brand.
Examples of Market Oriented Pricing Strategy
Here are some examples of how businesses use market oriented pricing strategy in different industries:
Airlines
Airlines use market oriented pricing strategy to adjust their fares based on the demand, seasonality, destination, flight duration, seat availability and competitors’ prices. They also use dynamic pricing techniques to change their prices in real time according to the changes in these factors.
Hotels
Hotels use market oriented pricing strategy to set their room rates based on the occupancy, location, amenities, star rating and competitors’ prices. They also use revenue management systems to optimize their prices according to the demand patterns and customer segments.
E-commerce
E-commerce platforms use market oriented pricing strategy to set their prices based on the supply, demand, product features, customer reviews and competitors’ prices. They also use algorithms and artificial intelligence to monitor and update their prices automatically according to the changes in these factors.
Frequently Questions:
Q1: What is market oriented pricing strategy?
A: Market oriented pricing strategy is a method of setting prices based on the demand and supply conditions of the market.
Q2: What are the benefits of market oriented pricing strategy?
A: Some of the benefits of market oriented pricing strategy are: aligning prices with customer value, responding to changing market conditions, gaining a competitive edge, increasing profitability, improving customer satisfaction, enhancing brand image, and achieving business goals.
Q3: What are the challenges of market oriented pricing strategy?
A: Some of the challenges of market oriented pricing strategy are: collecting and analyzing market data, estimating customer value and willingness to pay, monitoring competitor prices and actions, balancing short-term and long-term objectives, and dealing with price sensitivity and elasticity.
Q4: How to implement market oriented pricing strategy?
A: Some of the steps to implement market oriented pricing strategy are: conducting market research, segmenting and targeting customers, analyzing customer value and competitor prices, setting price objectives and strategies, determining price levels and structures, testing and evaluating prices, and revising and adjusting prices.
Q5: What are some examples of market oriented pricing strategy?
A: Some of the examples of market oriented pricing strategy are: dynamic pricing, penetration pricing, skimming pricing, value-based pricing, and competitive pricing.
References:
https://zenodo.org/record/894118
https://www.yalelawjournal.org/note/amazons-antitrust-paradox
http://www.investopedia.com/terms/p/predatory-pricing.asp
https://www.profitwell.com/recur/all/market-based-pricing
https://www.reactev.com/blog/market-pricing
https://www.indeed.com/career-advice/career-development/market-pricing
https://www.investopedia.com/terms/m/market-oriented-pricing.asp
https://www.marketing91.com/market-oriented-pricing/
https://www.business2community.com/strategy/what-is-market-oriented-pricing-and-how-to-use-it-02353698
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