Advantages and disadvantages of five pricing strategies

Pricing Structures

The company has to select a specific pricing structure from the following set of five distinctive pricing strategies, as revealed below:

New-Product Pricing

Differential Pricing

Psychological Pricing

Product-line Pricing, and Promotional Pricing

Each pricing strategy is characterized by its own advantages and disadvantages and the final decision has to be based on the comprehension of these features, as well as on the identification of the specific strategy which best serves the current needs of the organization. In this order of ideas, the following lines reveal the advantages and disadvantages of the five pricing strategies:

New-Product Pricing

Advantages:

Reveals an increased ability to quickly attain the established objective. Specifically, if the scope is that of selling the product to as many customers as possible, the implementation of a lower retail price would attract customers. Also, the scope of quick profitability can be attained with the aid of a higher retail price.

Disadvantages:

The main disadvantage is that the new product pricing strategy manages to attain organizational goals only on the short-term. As the sensation of novelty wears off, it reduces the ability of the continued pricing strategy to attain the initial goal. If for instance the goal was that of increasing market share through lower prices, the outcome would be that of decreased profitability. Vice versa, if the goal was that of increasing profits through high retail prices, the outcome would be that of lowered sales as a result of decreased customer access to the product or the simple unwillingness to pay more for a product.

The strategy has to be changed and replaced with a more sustainable one in the long-term. The procedure implies additional costs and additional complexities.

2. Differential Pricing

Advantages:

Considers and reflects the differences between products and the mechanisms involved in their manufacturing and sale. This advantage makes the strategy applicable in the establishment of the retail prices used in the traditional sales method as well as in the televised sale.

Disadvantages:

Not suitable when only implemented by a single organization, to sell the same product through specific channels. Often, the products sold through telemarketing retail at prices higher than the same products in stores, meaning as such that people would seek the product in stores, and the televised effort would be a simply advertising one.

3. Psychological Pricing

Advantages:

Draws higher numbers of customers

Appeals to basic human instincts and it is highly related to impulse buys

Disadvantages:

The benefits the promotional pricing strategy generates are generally short lived

Eventually, a situation can be reached in which the volume of sales and the profitability are only maintained when promotional sales are implemented, but prolonging these prices would subsequently reduce profitability.

In light of the analysis conducted, it becomes obvious that the most suitable pricing strategy to be implemented by the firm is a combination of psychological pricing and differential pricing. These two pricing structures best respond to the unique needs of the company and its features.