Marketing Plan Series (Part 2 of 7): The Pricing Strategy

pricing strategy

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The second element of the marketing mix is pricing.  We stated last week the marketing objectives for the proposed business.  We will discuss in this article the pricing strategy that can contribute to attaining those objectives.


Pricing strategy considerations

Businesses have to maximize profits as best as they could. This responsibility falls largely on the marketing team which is tasked with setting the final price for its product/service. Selecting the right pricing strategy directly impacts the profitability and long-term success of the business.

The best strategy is directed at finding the right price point that achieves both the financial objective of maximizing profit and the marketing objectives of gaining, maintaining, and growing sales and market share.

There are many models of pricing strategy. Choosing the right model, or combination of models, to use at various points of the product lifecycle depend on several factors such as the following:

  • Target market

Let us go back to your furniture marketing business.

Market research will show you what price points your customers will likely consider in making a decision to buy your product.


  • Positioning strategy

You have positioned your products as high quality imported brands.  In addition to your imported lines, you have developed also a high-quality local brand of furniture to suit the design and material preferences of the local market.


  • Competition

Your competition carries also imported brands and they have local brands as well that have very competitive prices.


  • Importation/Production costs

The landed costs of your imported furniture are fixed already as you have at least a six-month inventory for your initial launch.  You expect future landed costs to be higher due to the projected value depreciation of your local currency versus the currency of the exporting country.

The production cost of your local lines, for now, is stable.  Barring any unforeseen situation that can adversely affect the cost of the wood raw material, you expect production cost to remain constant for at least a year.


  • Marketing cost

This item includes your advertising and promotions costs, distribution costs (from your warehouse to your dealers/corporate clients), and sales costs (salaries, allowances, commissions/incentives of your sales personnel).

Your marketing cost would be relatively higher during the launch phase of your business and in the introduction stage of both your imported and local furniture lines.


Knowing the above factors, you are now ready to choose what pricing strategy to use.


Pricing strategies


There are many specific pricing strategy models used for different categories of product/service and for different markets.  For your furniture business, however, we will confine our discussion to the three most commonly used in the industry as follows:


  • Premium pricing

This is used for products with highly unique features that create a clearly significant competitive advantage.

You may consider this pricing model for your imported brands if these products have unique features and benefits.  These products may have technologically advanced materials or may use patented mechanisms, as in the case of office chairs lifting or tilting functions.

You may also use this model for your locally produced dining sets which may come in a variant that uses local hardwood which is highly sought and priced for its sturdiness and exotic wood grain and color.

When you use premium pricing for your unique products, you have to level up also the other elements of your marketing mix.

Your promotions and advertising messages should create a perception among customers that you are offering premium products with features clearly superior to competing products.

Your products should be available and attractively displayed in high-end furniture outlets.


  • Price skimming

High pricing is used during the launch phase and eventually reduced as you lose your competitive advantage due to new entrants in the market.

When competition gains access to imported furniture (other brands) with features similar to those products you initially launched and offers these competing products at lower prices, you consequently have to lower your prices to match competition and to prevent losing a sizeable market share.

Before competition came in, however, you were able to “skim the cream” i.e. made a substantial profit from the high price used during your initial launch.

Aside from recovering faster your initial operating costs, this pricing approach does not diminish the high-value perception of your products and can attract price-conscious customers.


  • Penetration pricing

In this model, prices are initially set at a very low level to acquire market share.  Once sales volume eventually increases, the price is gradually adjusted upward to generate profit while trying to retain, or even increase, market share.

Penetration pricing often results in initial losses for your company in exchange for getting known and established in the industry. You have to eventually raise prices to a profitable level particularly when new inventories at higher costs start arriving to replenish your depleted stocks.


There are other popular pricing models but may not be suitable for your furniture marketing business.  Among these commonly used models are the following:


  • Economy pricing

Using low prices by keeping marketing costs to the minimum.  Often used for supermarket items and airline seats.  This model is advisable only for businesses that have economy of scale.


  • Psychological pricing

An approach to pricing where customers are made to respond to prices in an emotional and non-rational manner. An example is pricing an item at 99 cents instead of $1 or putting a price tag of $199 instead of $200. This creates an illusion of low pricing when customers look at the first number.


  • Bundle pricing

Combining several of the same or related items into a bundle and using a single price that is lower than the total of the individual original prices.  This is usually intended to dispose of slow-moving and old items.



As a customer, I am sure you have encountered other examples of pricing strategy.


The pricing element of the marketing mix directly impacts the profitability, market share, and long-term success of your business.


I welcome your questions, comments, or suggestions.


You may also check out what other business concerns I can help you with.

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