How To Price Your Products: Kotler Pricing Puzzle Unveiled

What are the factors that you consider before making a purchase? For starters, do you give importance to the quality of a product, or is price a bigger consideration? In a few cases, you may try to achieve a balance between both of them.

If you happen to be the company that is developing the product or service, then pricing can turn out to be a tricky affair. It could be a distraction if you get the price wrong, as different factors influence each market. All these points must be considered before deciding which approach to take.

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Pricing Strategy Definition By Philip Kotler

Kotler’s pricing strategy is also referred to as the “nine quality pricing strategies” developed by the American Philips Kotler, the “Father of Marketing.”

The essence of this theory is to enable companies to position their products or services concerning their competitors in the market. The pricing strategy is to be implemented based on the quality that is delivered to the customers.

To have an idea about pricing strategy of Kotler, you need to have an idea about the price and why it is important in the market.

Why Is The Price Strategy Important For A Company?

An organization must determine the right price for its products. The reason is that it impacts its performance and profit metrics with an eye on future growth.

An example is when the price of a product is higher than the customers’ perception towards its value, fewer people will buy it. Profitability is affected if the price is too low, limiting growth and innovation.

What Is The Price?

Beyond the profit and financial stability that a business requires to balance the economy with the price, it is not only about profits or costs to survive in today’s competitive market. Price is the value of money a customer obtains in exchange for the value of the company’s goods or services. Though you must identify the added value of a price apart from its economic value, as there is a profit value to the good or service delivered.

Price is the value customers are willing to pay for what they want in terms of luxury or necessity. For this reason, price represents how a product or service is valued in the eyes of the customer.

When customers come to purchase a product or service, there are some questions they are bound to ask. Among the other questions they pose, they could ask Do I mind paying more if I get something of better quality? Can I pay less for a poor-quality product? What are the benefits that each of the products goes on to provide?

By determining the answers to a client’s questions, you may establish a basic principle on how customers perceive and evaluate a product or service before they commit to the same. This would make it clear how important the value or price of the product is that they are willing to obtain.

Kotler’s Pricing Strategies And Their Background

For setting a price, a product has to be based on the three Cs: customers, competition, and corporation.

These are elements that interact with the pricing strategy model. Kotler feels that there are three strategies to achieve price, which is taken from his book published in 1967.

Pricing that is based on the customer’s value

It means that the customer is the person who agrees to decide whether they are OK with a price or not. The price needs to showcase customers’ value for their products or services.

Competitive Pricing

At this juncture, a customer analyses the prices charged by the competitors for their products or services with similar or the same characteristics at higher or lower prices.

Cost-based pricing is important since it considers the total cost of production, sales, and distribution, which is the perfect balance that the company wants to offset the costs.

Psychological pricing

The pricing is all about how the clients want to perceive how they are going to view the economy. It is termed a “leveling effect” because it is not rounding off a figure that would help the customer visualize a purchase from right to left and ignore the rightmost portion.

An example is $ 6.99 as compared to $ 7.00, which is for numbers ending in 9. It will give the customer the illusion that the product or service they want is cheaper, as they will not notice the change in their mental game of numbers by lowering the number and not rounding it off.

Price is an important component of the market.

Critics’ views are mixed in the debate on pricing in the market. It is how a company wants to be considered and can be in line with the products and prices offered by their competitors in the market.

For Kotler, the customers are bound to have higher access to the products or services that companies provide in the market.

He is of the opinion that companies need to consider intelligent price variations for customers who want to save more money in their pockets and do not have access to higher prices.

People think along the following lines: If they buy something cheap, will the service or product be of poor quality? How does the company handle economic balance if the price is lower? With these options, Kotler generates a couple of pointers for controlling price pressure.

The first is to offer goods or services at a lower price, and the second would not change the price, but adding value to the same is going to benefit the customer.

Kotler believes there must be three versions of a good, better, or best product. They are referred to as price points because they have several layers of offers that customers welcome when they are presented.

Kotler Pricing Strategy

An objective of the quality and pricing matrix is to help position the products or services in the market. The onus is on the company to choose the prices so that the customers can access what the company offers.

Taking the above things into account, it is also important that the quality of products or services the organization offers to complement the price being put on the market.

It has to be consistent with what is being planned and what is to be told. As part of this model, Kotler goes on to formulate a few strategies where price and quality interact with each other, which are the following:

List Of Kotler Pricing Strategy

Premium
Overcharging
Rip-off prices and low quality
High value
Average
False economy
Superb value

Premium: the high price and high quality. A “premium price” strategy puts a high price tag on the product due to its superior quality. Such a strategy is adopted when a brand dominates a market. It means a higher price on the product, but excellent quality is assured, and examples would be products of companies like Apple, Rolex, etc.
Overcharging: the price is high, but the quality is medium. If the quality of a product is good, it would be difficult to raise its price above a specific point.
Rip-off prices and low quality—it is better to stay away from this category, as selling a product at a high price but not of good quality will make the customers not believe in the company.
High value—medium price but high quality—for providing a high-quality product at an affordable price tag to the customers. It will generate a voice-to-voice of the service or product being offered and have good market positioning.
Average—an average price and an average quality—indicate that the value that customers pay is similar to the value of the products or services on offer.
False economy: medium price and low quality—the low-quality products are being overrated. It poses a danger since the customers would be alert to it. Hence, it is better to formulate a strategy for a quality product and lower the price so that it can enter the market.
Superb value: low price and high quality. Offering high-quality products or services at a low price that is accessible to customers
Good value, medium quality, and a low price—the customers are exploring an option for an accessible price on the products or services they want to buy. It is a strategy that is used to generate more positioning and long life for a company to provide good value.
Economy—low price and low quality—a strategy that enables you to enter the market and develop future relationships with the customers. Though a gap develops between the company and the consumers, It is an investment for the future.

The way in which you can benefit from the relationship between price and quality

Kotler has gone on to describe the relationship between price and quality that is going to benefit a company within its specific market. It will empower new customers and provide them with the necessary confidence that will lead to long-term price points.

Also, be aware of the timing of the product or service with the above points that will provide you with a specific and clear picture of where you are in the market presently. The development of new opportunities is likely to arise along with the strategies you want to use in the future. Some of the objectives that may be achieved with these strategies are as follows:

For a high-profit premium strategy, few competitors are there, but the brand drives demand with sales at a higher price.
For leadership, a high-value strategy is a high-quality product with expensive items.
Economy strategy for long-term survival- More market share and is about updating what the customers want, being ready for changes, and how to cope with the same
A low-price strategy to develop sales This is a strategy that most companies adopt when they enter a market. Low prices are established, meaning that the customers like them.

Conclusion

The pricing strategies of Kotler are a marketing supplement to establish prices based on the market environment where you want to be after reviewing the competition.

It is vital that a customer can have various proposals for a product or service from the same company, as you need to choose one based on your economic capacity.

The company has to adapt and change based on the thought processes of the customers. Apart from that, the strategies formulated at their end should be well received in the market, where the price is the ultimate king. Kotler feels that a company can develop and organize itself in a better way so that it will be able to satisfy customers better.