How to adjust prices or what are the different price adjustment strategies on the basis of which organization final its prices. The basic prices are adjusted by the organizations in order to deal with changing situations & customer differences. The following are the six price adjustment strategies that are employed all over the world by different sorts of organizations.
The basic aim of every price adjustment strategy is to earn a sufficient profit by satisfying the customer’s needs in the best possible manner. So here the question is what are some price adjustment strategies that may allow you to earn enough profit by satisfying your customer need and demand.
Defensive Strategies in Strategic Management
How to Adjust Prices? Price Adjustment Strategies
How to adjust prices? Below are different price adjustment strategies on the basis of which company settled its prices.
- Discount & Allowance Pricing
- Segmented Pricing
- Psychological Pricing
- Promotional Pricing
- Geographical Pricing
- International Pricing
- Discount & Allowance Pricing:
In this price adjustment strategy, the early responses of the customers are rewarded by the adjustment of the basic price like volume purchases, early payments and off-season buying. These price adjustments are regarded as discounts & allowance and it may take the following shapes.
- Cash Discount:
Those customers who pay their bills quickly, cash discount is given to them. For example, for cash discount, a term is used like “2/15, net 30” which means that if a customer pays the bill within 15 days, then he will get 25 discounts where the normal duration of payment of that bill is 30 days.
All the customers that fulfill these conditions should be availed cash discount. In many organizations, cash discounts are given in order to reduce bad debts, improve the cash situation of sellers & reduce credit collection costs.
- Quantity Discount:
The customers who purchase a large volume of products are given price reduction, which is generally called quantity discount. For example, there is a term “$15 per unit for less than 200 units & $13 per unit for more than 200 units”. It is according to the law that all the customers have access to the offering of quantity discount & also the amount should not be more than the cost saving of sellers that are linked with huge quantities.
- Functional Discount:
It is also known as trade discount & seller provide it to the members of the trade channels who are involved in performing certain functions storing, selling & record keeping. The functional discounts may vary for different trade units on the basis of varying functions, but it must be the same in members of the particular trade unit.
- Seasonal Discount:
The customers who purchase those products that are out of season are provided with a special discount called seasonal discount. For example, the retailer purchasers of lawn & garden equipment are given are provided with a seasonal discount by the producer during fall & winter months so that the retailer would make early order by anticipating heavy selling seasons of spring & summer months. The Seller keeps his production steady during the whole year through seasonal discounts.
- Allowances:
Another kind of reduction in price is called allowance like trade-in-discounts which are mostly given in the automobile industry, but these can also be offered for durable products. Another kind of allowances includes a promotional allowance that is offered to the dealers who helps in the sales support programs & advertising.
- Segmented Pricing
Another sub-heading under the content of price adjustment strategies is segmented pricing. The differences among customers, locations & products are allowed by the organizations by adjusting their basic prices. When an organization is involved in Segmentation, then it sells its products at two or more different prices, although the costs of these differently priced products are the same.
There are many forms of segmented pricing. In the case of customer-based segmented pricing, Different prices are charged for different customers for the same product. For example, the lower fee is charged from senior citizens & students in the museum as compared to other visitors.
In the case of product-based segmented pricing, different prices are charged for different versions of products but not on the basis of difference in their costs. Finally, under location-based segmented pricing, different pricing is charged for the same product at a different location in spite of the same cost of distribution. Time pricing is another form of how to adjust prices? In time segmented pricing, organizations charge different prices according to the time.
- Psychological Pricing
Psychological pricing is also included in price adjustment strategies. Something about the product is represented by its price. Most customers judge quality on the basis of price. For example, a bottle that contains the scent worth $ 400 may be purchased willingly by a customer for $1000 because this higher price is considered to be indicative of the special quality of the scent.
In considering the psychological pricing by the seller, instead of focusing only on economics the psychology of pricing is also focused. For example, there is a study conducted which shows that the customers consider high priced cars as a high-quality one.
In some cases, the customers examine the cars or call the relative past experience to determine the quality on the basis of priceless elements. Psychological pricing also includes reference pricing which is the conceptual price when a customer looks at a particular product.
- Promotional Pricing:
Price adjustment Strategies also include promotional pricing in which certain organizations keep the prices of their product lower than the list price or even lower than the costs. There are many forms of promotional pricing. There are some stores & supermarkets that offer certain products at a much lower price in order to attract a lot of customers to purchase other products also.
Special event pricing is also used in certain seasons to capture the high traffic of customers. Sometimes producer also provides cash rebates to customers who purchase his product from a particular dealer. Besides the useful aspects, there are certain harmful aspects of promotional pricing too.
- Geographical Pricing:
Geographical pricing is another way of How to Adjust Prices? In geographical pricing, the organization determines the pricing of its products in different locations of the country or the world. There are certain customers who are much distant from the organization, location & many are quite closer.
So there are a number of pricing techniques used on the basis of the geographic location like FOB pricing in which the far away customers are charged a higher price than the closed ones. Uniform delivered pricing is another promotional pricing in which all the customers at different locations are charged a similar price on the basic price plus average freight charges.
Another technique is called zero pricing in which a particular city is nominated as the base city and the organization charges freight charges from the customers on the basis of the distance from that base city. As the distance between the location of the customer & base city increases, the price of the product becomes higher. Each promotional pricing method has its own advantage & disadvantage.
- International Pricing:
International pricing also impacts the price adjustment strategies of the business organization. The organizations that operate in different countries of the world have to decide the prices of their products in different countries. One method is to charge a single uniform price throughout the whole world.
But the price of the international product is based on many other factors like costs, laws & regulations of countries, economic conditions, retailing & wholesaling system, competitive situations & consumer perceptions, etc. So the other method is to charge different prices in different countries of the world.
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Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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