Pricing Strategies
There are a number of factors that go into a firm's pricing strategy. The firm can consider the prices offered by competitors and the firm's own desired competitive position. It can base prices on the cost of production. The firm must consider the price elasticity of the demand for the good. The company can also choose from a number of different strategies, based on this demand curve: revenue maximization, profit maximization, cost leadership, penetration pricing and more. Other strategies include skimming and other forms of price discrimination (NetMBA.com, 2010). For example, if Brooks Brothers priced its goods differently for different marketing channels such as the Internet or a retail channel partner like Nordstrom, this would be a form of price discrimination.
These different pricing strategies are used to achieve different objectives. For a luxury brand like Brooks Brothers, the price will support the luxury brand image. Prices therefore must be relatively high. While the quality of the goods is high, the company is deliberately choosing not to compete on the basis of high quality at a low price (value proposition) but high quality at a high price. As the result of this strategy, the high price reinforces the luxury image of the brand. It has been hypothesized in the past that buyers of luxury goods often have reverse price elasticity of demand wherein the higher the price is the higher the demand will be (Kapferer & Bastien, 2009).
For Brooks Brothers, it must consider its overall strategy when setting prices. Because its customers have a relatively low level of price sensitivity, the company can reasonably assume that it will cover the costs associated with production, distribution and marketing. Its market share is firmly established, so there is little need for penetration pricing. Indeed, lowering costs would like...
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now