Marketing Strategies : The Price Mix

The price mix is a series of defined to attain or maintain a specific goal where sales objectives and profit margins of a company are concerned.
When a company launches a product, one of the most difficult questions it has to answer is: At what price should we sell this product? Indeed if the company chooses a price which is too low profit margins will be low and sales will be high, on the other hand if the price is too high the profit margin will be high but it may discourage consumers from buying the product. Moreover the price contribute to the making of the image of a particular product
To fix a price a company has many alternatives:
-The cost approach : The company decides to fix the price of the product according to what the product itself costs, this method is used in trades: For example if a shop owner buys a product 10 from a retailer he has to make profit on the product so he will sell it at a higher price .
With this technique the marketer must be careful about two aspects: The price must not be too high.

-The demand approach
The Demand varies according to prices offered by a company. This principle is called elasticity of the demand (according to the price), The demand and prices are inversely proportional, when prices go up demand goes down and when prices go down demand goes up. If the marketer uses this method he must know about price elasticity to have the biggest market share.
He must also have a notion of the psychological price which is the maximum price the consumer is prepared to pay for a product if the psychological limit is reached the demand can go down.
He must also know about the acceptable price which is the price a consumer wants to pay for a product.

-The competition approach
By using this technique the marketer will refer himself to the prices of his competitors for a same product ( 2 companies selling mobile phones with the same characteristics for example). The marketer can sell his product at a higher price (image strategy) or at a lower price which will lead to a price war.

-Price of a new product
The marketer has 3 choices ahead of him: He can either fix a price lower than the price of his competitors. (Penetration strategy) or he can either fix the same price as them. Lastly he can fix a higher price than the prices of his competitors (Quality research).

In some industries, marketers have some scope to practice the differentiated prices technique for example lets take the hotel industry, there are many types of hotels classified from one star to five stars. All hotels propose the same basic service: lodge people, they all provide their clients with shelter.
Yet they dont have the same prices that is because they dont offer the same additional services, some hotel may have a massage parlor, a sauna, a restaurant while others may not.
Why some hotels are classified as 5 stars, some as 3 some as 2?
The expected and at the same time true answer would be:
Because quality wise 5 star hotels are better than 3 star hotels
But from a marketers point of view the answer is :
Because these hotels dont target the same market, 3 star hotels are not in competition with 5 star hotels but with other 3 star hotels. If one day a 3 star hotel wants to upgrade to become a 5 star hotel it will have to review its marketing strategy, indeed it wont have the same prices anymore it wont have the same clients its target market will be completely changed.

An article by Mon hotel.