There are three pricing strategies
1- To dominate the market or monopoly
2- Price to differentiate. High end low end medium end user. It’s also depend on the uniqueness of the products. Easy to copy ?
3- Price to compete or penetrate the market
4- Price based on the cost.
5- price based on time
5- Price based on the value it’s create to the customer or problem solving. Gaining pleasure and avoiding pain. high price
6- Price based on Short term & long term strategy or vision.
-Short term: high price
Some products might have demand in short term so there is no resin to price cheap margin. The goods not use regularly. However you need to look closely to the market price.
-Uniqueness: high price: you can price high if the products quite unique and has no alternative products.
-Monopoly theory or long term pricing strategy or wealthy strategy: low price Than market.
When you plan to dominate the market within 1 or 2 years you scarify the short term gain for the long term gain for specific products.
Each company must have both short term products and long term products strategy.
To much for long term company could not survive in present time. Without long term product strategy company company could not flourish & rich.
Richness belong to those who dominate the market. Gain small amount of margin but with large scale mean abundance of cause competer quite hard to come in the market as the margin quite small and take time to get the large scale.
Amazon, wall mart use this strategy. As time goes buy they grow bigger and bigger and dominate the market eventually buy leveraging the volume of buying.
Think about this imagine:
*you go to buy at amazon or wall mart price is even cheaper than you buy from the factory itself because you buy with small volume. Wall-mart & amazon buy with supper large volume.
* you are the supper market owner. The price you buy from factory even more expensive or just equal the price you buy from wall-mart so add shipping fee you lose or equal mean you have no profit. If adding profit you fail.
Monopoly formala:
0- Sell high margin but not the lowest price. Attract competitors.
1- Price you sell is always the cheapest. Attract buyer.
2- Price you sell is equal factory price + shipping + slight margin. Kill competitors.
3- Price you sell is equal factory price + shipping. Kill competitors.
4- Price you sell is equal factory price . Kill competitors.
5- Price you sell is less than factory price. Kill competitors.
Monopoly Strategy level 0-4
Stage 0
Sell high margin but not the lowest price. Attract competitors. You lose the market share. Hard to get rich as day by day you lose the market share to competitors.
Stage 1
Sell high margin but always lowest price: you have to monitor market closely. It’s easy to lose market share to new competitors.
Stage 2
Sell small margin: factory price + shipping+ slight margin
Stage 3
Sell small margin: factory price + shipping
Stage 4
Sell small margin: factory price
Stage 5 Wall-mart
Sell small margin: cheaper than factory price
(Cost efficiency, volume leverage)
most company apply strategy 1 that why they stay poor while they are not the only player in the market
Depend on your financial strage you can adjust the percentage of strategy ex
Wealthy company take 70% long term products 30% short term products
Poor company take 30% long term & 70% short term products.
Poor company:
Year 1 ST30% LT70%
Year 2 ST40% LT60%
Year 3 ST50% LT50%
Year 4 ST50% LT50%
Year 5 ST60% LT40%
Year 6 ST70% LT30%
Year 7 ST80% LT20%
Year 8 ST90% LT10%
Year 9 ST100% LT0%
You can monopoly by 3 ways
– User network: facebook
– Product uniqueness in technology, feature, brand awareness, customer segment, feeling endorsement : Apple, LV, Guci, cosmictic.
– New market segment (not compete)
– Exclusive law
– Low price & leverage large volume market share & distribution channel & cost efficiency : hinder or kill the competitors. Stage 1-5 year 1- 9
*Monopoly buy Leverage in large volume & sell cheap:
Wen you sell cheap you can sell more
When you sell more you buy more so you can get cheaper price
When you buy with cheaper price you can sell cheaper
Wen you sell cheaper you can sell even more
When you sell even more you can buy even more so you can get even cheaper price.
* if you sell expensive you attract competitors
If there are lot of competitors you lose market share
If you lose market share you buy less
If you buy less you get expensive price
If you buy expensive price you can’t sell cheap
If you can’t sell cheaper than competitors you dead in the long term.
Before you dominate you have to think about the future demand of your products
Will it be long term use or short term use in the future? While monopoly is a long term strategy and no demand in the future you will end up climbing to the top of mountain and then realized that you clim the wrong mountain.
Ex: in the future people won’t use plastic anymore….gasoline any more….green technology will be the replacement of all
Start from 1 products then enlarge to orders.
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