Introduction
In the demanding enterprise environments of the present-day dynamic business landscape, most industries confront the challenge generated by the fact that the market has become overcrowded with companies. The market will be seen to be saturated, where the supply of goods or services is already much more than the clients care to buy, which creates an intense struggle among different firms that are trying to get hold of the loyalty of consumers.
As a result, the competition becomes tougher, and it becomes a real challenge for brands to distinguish themselves from other players in the market. Here, we will review all the difficulties businesses have to deal with in a competitive environment and examine in detail the role Economy Pricing strategies can play in mastering them.
What Is Economy Pricing?
Economic pricing is a pricing strategy that sets prices for products that are produced at low production costs at a lower price. The strategy takes into account, among other things, the cost of making a certain product and transporting it to shelves, as well as the way it is priced. This can cause these products to have low prices compared to those produced with high costs.
Furthermore, people can do the same thing with products that do not need further marketing or advertising because the price can be established in a way that reduces the cost of marketing and advertising.
In addition to that, economic pricing concentrates on products that companies want to sell in large quantities, significantly reducing cost per unit and still bringing revenues for the firm. This method can be particularly useful with consumable items of universal quality everyone is familiar with, like grocery items or household cleaners.
Economy Pricing: Benefits in a Competitive Market
Economy pricing indeed can be an appropriate competitive tool in saturated markets as long as several conditions are met. Here’s how:
Cost Leadership:
Many firms set their prices low, utilizing the cost leadership approach that dictates their concentration on decreasing outputs and operational costs to be able to sell their goods and services at more affordable prices. When the competitive factor is price, productions powered by low-cost resources have a chance to remain profitable while still offering low rates to customers.
Market Penetration:
In highly competitive markets, the challenge to capture market share may seem overwhelming. An economy pricing strategy may very well be useful in capturing the market share by targeting price-sensitive customers who are cost-conscious and are always looking for the best deals. This approach can be extremely useful as it can, by the time one is done, boost the market share.
Customer Loyalty:
Were it to sell consistently low prices, customer loyalty can be built, and particularly among the price-conscious customers. However, while other companies may be raising/dropping their rates, a company facilitating the steady low prices will have an opportunity to gain trust and loyalty from its customers.
Competitive Positioning:
Economy pricing can be used to establish the company as one of the low-cost competitors in an overcrowded segment. This positioning can assist in differentiating the company when the rivals may be relying on premium pricing or other strategies.
Survival in Price Wars:
As the market equilibrium comes, competitors tend to give in to price wars to grab more market share. This approach, which may be used by companies offering economy pricing, ensures the businesses’ high resilience and profitability in such complicated situations, as their operations are geared towards getting profit even on a low margin.
Economy Pricing: Pros and Cons
Pros:
Primarily, economic pricing will bring a lot of customers. Merchandise on the shelves is initially more attractive to the customers mainly from the price point of view, and hence, businesses providing the economy pricing strategy can gain the attention of cost-sensitive customers, who otherwise would have gone for the competition’s offerings. Given below are some pros:
- Market Penetration:
Economy pricing has the power to create a good market position for competitors by presenting a value-for-money proposition. Companies can lower their competitors to the ground with such a strategy and create a lot of market accession in a short time.
- Increased Sales Volume:
Lower prices are naturally associated with higher sales due to the resultant increased demand. Though profits will be thin, overall, huge business deals will result in huge profits.
- Customer Loyalty:
Businesses can maintain a brand that appeals to value through continuous offers of low prices, which, in the long run, keeps attracting customers to make budget and regular purchases. The demand for the product will only increase in this case as most customers always go for the best deal. For instance, they will be looking out for the best price in the market.
- Cost Savings:
The lowering cost of a business through economy pricing allows it to sustain its reduced prices by clearing the backlogs in its business processes. Such cost savings may be forwarded to customers; however, that perception of value is set to be enhanced.
Cons:
Economy pricing is tempting due to its possibility of attracting a high number of sales and potential price-sensitive consumers; however, the profit margin is not satisfactory.
- Risk of Devaluing the Brand:
An apposite pricing technique may knock the brand image further. Many consumers develop a stigma against lower-value products being of lesser quality, and this is a very powerful perception to break. Such activities could bring inherent obstacles to the image and reputation of the brand, which may affect its future introduction of high-end products and services.
- Low-Profit Margins:
What is common in almost every price strategy in marketing is that we sell to budget-oriented buyers cheaper than our competitors do. Generally, this strategy can be said to be among the factors that cause low earnings. If the productivity rates do not soar as planned, firms might get into problems with making payments for operating expenses; otherwise, companies may not see the profit at all.
- Dependency on High-Volume Sales:
High-volume returns are the product of the economy pricing strategy. It introduces the volume-product concept, where a huge amount must be sold to meet the profit goals, provided that the margin is low. If the business does not have the necessary volume of products, it might face a very risky financial precarious position.
Also, emphasis on high-volume sales may raise problems with overproduction, which may result in excessive inventories of domestic waste and necessary storage expenses.
The Bottom Line
Deciding between mass market prices and those that focus on luxury goods is a question that requires some careful deliberation on the company’s part. Prices are set with the aim of attracting buyers who are looking for value. And such a strategy works best if high volumes are sold. This approach works fine if you have an industry where your business runs and the high component of the price is attractive to your customers.
Determine how sensitive your customer is to price and ways to communicate that sensitivity to your customer. A product or service whose value is more or less the same as the value of another can be categorized in this way. Thus, they will surely survive an all-time low period of the economy. It is necessary to create a balance where your customers are at the base level of price and not the next level of value additions or premium offerings.
