How to Apply Kotler’s Pricing Strategies for Your Business
Are you looking for a way to set the right price for your product or service? Do you want to know how to position yourself in the market relative to your competitors? If so, you might want to learn about Kotler’s pricing strategies.
Kotler’s pricing strategies are a set of nine options that help you choose the best price-quality combination for your offering. They are based on the idea that customers have different perceptions of value and quality, and that you can use these perceptions to your advantage.
In this article, we will explain what Kotler’s pricing strategies are, how they work, and how you can apply them to your business. We will also provide some examples of companies that use them successfully. By the end of this article, you will have a better understanding of how to price your products or services effectively and competitively.
Key Takeaways
Kotler’s pricing strategies are a set of nine options that help you choose the best price-quality combination for your product or service
They are based on the idea that customers have different perceptions of value and quality
They help you position yourself in the market relative
What are Kotler’s Pricing Strategies?
Kotler’s pricing strategies are a framework developed by Philip Kotler, a renowned marketing professor and author. He proposed that there are nine possible price-quality strategies that companies can use, depending on their objectives, target market, and competitive situation.
The nine strategies are:
1. Premium pricing
This is when you charge a high price for a high-quality product or service. You use this strategy when you have a strong brand, a loyal customer base, or a unique value proposition. You aim to maximize your profit margins and create a perception of exclusivity and prestige.
2. High-value pricing
This is when you charge a moderate price for a high-quality product or service. You use this strategy when you have a competitive advantage in terms of quality, features, or benefits. You aim to attract customers who are looking for value for money and quality assurance.
3. Superb-value pricing
This is when you charge a low price for a high-quality product or service. You use this strategy when you have a cost leadership position, or when you want to gain market share quickly. You aim to offer customers an unbeatable deal and create a perception of generosity and trustworthiness.
4. Good-value pricing
This is when you charge a moderate price for a moderate-quality product or service. You use this strategy when you have a balanced offering that meets the needs and expectations of most customers. You aim to provide customers with a fair and reasonable price-quality trade-off.
5. Average pricing
This is when you charge a moderate price for a low-quality product or service. You use this strategy when you have a weak or undifferentiated offering that does not stand out from the competition. You aim to survive in the market and avoid losing customers to lower-priced alternatives.
6. Over-charging pricing
This is when you charge a high price for a low-quality product or service. You use this strategy when you have a monopoly position, or when you can exploit customer ignorance or inertia. You aim to maximize your short-term profits and take advantage of market opportunities.
7. Economy pricing
This is when you charge a low price for a low-quality product or service. You use this strategy when you have a low-cost structure, or when you target price-sensitive customers. You aim to minimize your costs and offer customers the lowest possible price.
8. False-economy pricing
This is when you charge a very low price for a very low-quality product or service. You use this strategy when you have an inferior or defective offering that does not meet customer needs or expectations. You aim to deceive customers and make them believe they are getting a bargain.
9. Rip-off pricing
This is when you charge a very high price for a very low-quality product or service. You use this strategy when you have an unethical or illegal offering that harms customers or society. You aim to cheat customers and make them pay more than they should.
How to Apply Kotler’s Pricing Strategies for Your Business
To apply Kotler’s pricing strategies for your business, you need to follow these steps:
Analyze your product or service quality
You need to assess how your product or service compares to your competitors in terms of quality, features, benefits, performance, reliability, durability, design, etc. You can use tools such as benchmarking, customer feedback, quality audits, etc. to measure your quality level objectively.
Analyze your customer value perceptions
You need to understand how your customers perceive the value of your product or service in relation to its price. You can use tools such as surveys, interviews, focus groups, etc. to gather customer insights and preferences. You need to identify what factors influence their purchase decisions, what benefits they seek, what trade-offs they are willing to make, etc.
Analyze your market and competitive situation
You need to evaluate the market conditions and the competitive forces that affect your pricing strategy. You can use tools such as PESTEL analysis, Porter’s five forces analysis, SWOT analysis, etc. to analyze the external environment. You need to identify the market size, growth, segmentation, demand, supply, trends, opportunities, threats, etc. You also need to identify your main competitors, their offerings, their prices, their strengths, weaknesses, strategies, etc.
Choose the best pricing strategy for your objective
Based on the previous analyses, you need to select the most appropriate pricing strategy for your product or service. You need to consider your business goals, your target market, your competitive advantage, your cost structure, your profit margins, etc. You need to choose a strategy that aligns with your value proposition and positioning statement. You also need to consider the potential risks and challenges of each strategy and how to overcome them.
Implement and monitor your pricing strategy
Once you have chosen your pricing strategy, you need to implement it and monitor its performance. You need to communicate your price and value to your customers effectively and persuasively. You need to use tools such as pricing software, price lists, discounts, promotions, etc. to set and adjust your prices. You also need to use tools such as sales reports, customer feedback, market research, etc. to measure and evaluate your pricing results. You need to track your sales volume, revenue, profit, market share, customer satisfaction, loyalty, etc. You also need to review and update your pricing strategy regularly based on changing market conditions and customer needs.
Examples of Kotler’s Pricing Strategies
Here are some examples of companies that use Kotler’s pricing strategies successfully:
Apple
Apple uses a premium pricing strategy for its products such as the iPhone, iPad, MacBook, etc. It offers high-quality products with innovative features and design that appeal to customers who value quality and status. It also has a strong brand image and loyal customer base that support its high prices. Apple aims to maximize its profit margins and create a perception of exclusivity and prestige.
IKEA
IKEA uses a superb-value pricing strategy for its products such as furniture, home accessories, etc. It offers high-quality products with functional design and low prices that appeal to customers who value value for money and convenience. It also has a low-cost structure and efficient operations that enable it to offer low prices. IKEA aims to offer customers an unbeatable deal and create a perception of generosity and trustworthiness.
Coca-Cola
Coca-Cola uses a good-value pricing strategy for its products such as soft drinks, juices, water, etc. It offers moderate-quality products with consistent taste and quality that meet the needs and expectations of most customers. It also has a moderate price point that reflects its value proposition and positioning statement. Coca-Cola aims to provide customers with a fair and reasonable price-quality trade-off.
Tips
Here are some tips on how to use Kotler’s pricing strategies effectively:
- Do not base your pricing strategy solely on quality or price; consider other factors such as costs, demand elasticity, customer segments, etc.
- Do not assume that higher quality always means higher price or vice versa; consider the value delivered by your product or service
- Do not stick to one pricing strategy forever; be flexible and adaptable to changing market conditions and customer needs
Kotler Pricing Strategy and Global Demand
One of the most widely used models of Philip Kotler in the field of strategic planning is Kotler’s Pricing Strategies. The framework examines the different pricing strategies and discusses the importance of understanding the customer’s value perceptions as well as other internal and external factors while setting prices.
According to Kotler, there are nine possible pricing strategies that can be mapped on a 3×3 matrix by cross-referencing quality and price point. The pricing strategies are:
- Premium Pricing: high quality, high price
- High Value Pricing: high quality, medium price
- Superb-Value Pricing: high quality, low price
- Good Value Pricing: medium quality, medium price
- Average Pricing: medium quality, average price
- Over Charging Pricing: medium quality, high price
- Economy Pricing: low quality, low price
- False Economy Pricing: low quality, medium price
- Rip Off Pricing: low quality, high price
Each pricing strategy has its own advantages and disadvantages, depending on the market conditions, customer preferences, competitive landscape, and product characteristics. Kotler’s Pricing Strategies can help companies position their products or services relative to competitors as perceived by the market, and consider their pricing strategy accordingly.
Global demand
The global demand for a product or service can be influenced by various factors, such as economic growth, consumer income, preferences, tastes, trends, technology, innovation, regulation, competition, and so on. Depending on these factors, the demand can increase or decrease over time.
Kotler’s Pricing Strategies can help companies respond to changes in global demand by adjusting their prices and quality levels to match the market expectations and capture more value. For example, if the global demand for a product increases due to higher consumer income or preference, a company can use a premium pricing strategy to charge higher prices and deliver higher quality. This can increase the company’s profitability and brand image. On the other hand, if the global demand for a product decreases due to lower consumer income or preference, a company can use an economy pricing strategy to charge lower prices and deliver lower quality. This can increase the company’s market share and volume.
However, Kotler’s Pricing Strategies are not static or fixed. They can change over time as the market evolves and new competitors enter or exit. Therefore, companies need to monitor the market conditions and customer feedback regularly and adjust their pricing strategies accordingly. Moreover, companies need to consider other factors besides price and quality when setting their prices, such as costs, value proposition, differentiation, segmentation, distribution channels, promotion methods, and so on.
Frequently Asked Questions
Q1: What are the advantages of Kotler’s pricing strategies?
A: They are easy to use and understand
They provide various options for different situations
They help you align your price with your quality and value
Q2: What are the disadvantages of Kotler’s pricing strategies?
A: They are too simplistic and ignore other factors such as costs, demand elasticity, customer segments, etc.
They are based on subjective perceptions that may vary across customers and markets
They may not reflect the actual value delivered by your product or service
Q3: Can you have two pricing strategies at once?
A: Yes, you can have different pricing strategies for different products or services within your portfolio
You can also have different pricing strategies for different customer segments or markets within your target market
However, you need to be careful not to confuse or alienate your customers or create internal conflicts or cannibalization
References:
https://zenodo.org/record/894118
https://www.yalelawjournal.org/note/amazons-antitrust-paradox
http://www.investopedia.com/terms/p/predatory-pricing.asp
http://www.opc.gouv.qc.ca/en/consumer/topic/price/en-prix-indique-en-magasin/absence/double-etiquetage/
https://hstalks.com/t/1488/what-will-consumers-pay-more-for-luxury-markets-an/?business
https://vireton.com/kotlers-pricing-strategies/
https://www.smartinsights.com/marketing-planning/marketing-models/pricing-quality-model/
https://getlucidity.com/strategy-resources/guide-to-kotlers-pricing-strategies/
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