Pricing a new product is probably the most difficult marketing task: set the price too high, and you will encourage competitors to enter; set it too low, and you will be out of the market pretty soon.
Though pricing strategies can be complex, the basic rules of pricing are straightforward:
The most common strategies are:
What the Market Will Bear
In a non-competitive market, companies might employ a strategy that optimises profits. This strategy sets the price based on the maximum price the market will pay for the product.
Examples of non-competitive marketplaces: 1) Semi-monopolistic markets (e.g. credit ratings); 2) Early Adopters.
Gross Profit Margin Target
A gross profit margin is the difference between sales and the cost of goods & services sold, divided by revenue. This represents the percentage of each dollar of a company’s revenue available after accounting for the cost of goods sold.
If a company produces phones and earns $32 million in sales but pays $24 million for the items sold, then the company’s gross profit margin would be ($32M – $24M) / $32M = 25 per cent.
Profit margins are very dependent on sector/vertical:
- Manufacturers typically aim for a GPMT of 50%
- Distributors (Wholesalers) usually need a GPM of 10 to 15%
- Dealers (Retailers) require a GPM of 30 to 50% (the higher percentage is for retailers that have to train people to use the produc,t and the lower margin is for retailers that are selling a product that does not requirafter-salesle support)
Most Significant Digit Pricing
Psychological pricing (also price ending, charm pricing) is a pricing/marketing strategy based on the theory that certain prices have a psychological impact. Studies and experience show that sales will be significantly higher if a product is priced at say $29.95 or $29.99 instead of $30.
Combining all three
If a product is positioned as unique, smart marketing companies typically use all three strategies in combination. The new iPhone 7, e.g., is priced at $799, $479, etc.
Data With Purpose 
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