The Importance of Correct Pricing for Business Marketing Success

December 1, 2008 at 10:00 pm Leave a comment

The pricing of your product or service is a key element in determining the profitability of your business. Unless you have a product or service that offers a unique or additional benefit, if your price is too high, demand will reduce and you may price yourself out of the market.

Unless you have a sustainable cost advantage, if your price is too low, your sales volume may not generate enough revenue to cover the costs associated with your business. People may also believe that the product or service does not offer value at such a low price.

Why Is It Important?

  • Pricing is a key determinant in the decision making process customers use to purchase a product or service
  • It is important to establish how much your target market will pay for your product or service, how sensitive your customers are to changes in price and how price discounting will affect the level of demand and profitability of your business.

Pricing for Different Life Cycles

At different stages of your product or service life cycle you may change your pricing strategy to suite your business needs.

Life Cycle Low Price Strategy High Price Strategy
New Launch Used initially to encourage customers to trial your product or service and repurchase on a regular basis  Used to generate profits to cover launch costs. Product or service may have a unique point of difference or high cost of production 
Growth Stage Used short term to stop new competitors entering the market and to grow your market share  Used to grow profits 


Decline or Maturity Stage Used to generate enough revenue to cover costs Used to maximise revenue in order to fund new projects 

 Price Sensitivity

Price sensitivity is the extent to which a customer’s purchase will be influenced by price. The less price sensitive your customers are, the greater control you have over your pricing.  The more price sensitive customers are, the more you need to monitor your competition and the market to ensure you remain competitive in the market.


Price Sensitive Less Price Sensitive
Commodity item eg. bread  Exclusive or tailored product or service or value added product or service eg. bread with soy and linseed 
Similar products or services available on the market making it easy for your customers to switchMany similar retail stores in the one location with similar opening hours      


Unique product or serviceProducts or services that dominate a market or segment

Essential to customers eg: pharmacy that opens late hours

Competition located nearby eg. 10 gyms in the one area Located in an area that limits competition access eg: airport retail outlets 

What are your pricing tips?

Posted by Susan Oakes


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