In today's marketplace, competitive pricing is important for attracting and retaining customers. Consequently, a well-planned pricing policy plays a critical role in market-oriented strategic planning.

Companies set a price for the first time when they market a new product or introduce products into a new distribution channel or geographical area. However, companies often face situations where they have to cut or raise prices. For example, prices should be decreased when there is excess plant capacity, declining market share, or recession. Likewise, prices should be increased when there is inflation or excess demand. Instead of changing prices at random, it is necessary for companies to undertake price analysis.

The goal of price analysis is to assist in the development of an effective pricing plan that indicates the appropriate price levels to use when launching a new product, and the most appropriate price levels during subsequent stages of the product life cycle.

Companies must consider different pricing strategies when selecting prices. "Pricing to penetrate" is a pricing strategy that uses a low profit margin to penetrate the market. It is designed to grab market share quickly. "Skimming the cream," on the other hand, is a strategy that uses high pricing to obtain high profits.

Mark-up pricing, target-return pricing, perceived-value pricing, value pricing, going-rate pricing, and sealed-bid pricing are some of the pricing strategies followed by companies. A brief explanation of these pricing methods is given below:

• Mark-up pricing: Companies add a standard markup to the products' cost. This is the most elementary method of pricing that companies follow.
• Target-return Pricing: Companies fix a price that would yield a target ROI.
• Perceived-value Pricing: Companies base prices on the value of the product as perceived by customers.
• Value Pricing: Companies set a low price for a high-quality offering.
• Going-rate Pricing: Companies fix prices based on competitors' prices.
• Sealed-bid Pricing: Companies adjust prices based on the expectation of how competitors will price.

Of late, the Internet has revolutionized the pricing practices followed by different companies. By using the Net, sellers can monitor customer behavior and customize product offerings. Web-based software can target shoppers for specific products and prices. At the same time, buyers can compare prices instantaneously. Price-comparison sites can help customers get a better deal. Moreover, both buyers and sellers can negotiate prices through online auctions and exchanges.

Companies cannot always depend on customers' recognizing the value of their products against that of their competitors'. So, they should continuously scan the market for prices charged by competitors. Information about prices can be gathered from the following sources:

• Product literature of competitors
• Phone calls to the competitor's order-processing desk
• Advertisements in magazines
• Questioning the customers of competitors
• Purchasing products of competitor's (a more expensive option)
• Purchasing information through market engineering services

Since most marketing decisions are based on price, it is an extremely important parameter. Moreover, measuring price is easy as well as inexpensive. Many companies advertise their prices in the trade press. Others give their prices freely over the phone. If these methods fail, companies can approach end-users for determining prices.

It is necessary for business executives to remember that price is a dynamic variable in any market. It can sometimes be difficult to measure, especially when companies are involved in sealed-bid contracts with the government, or when discounting is prevalent. Companies should also realize that basing market strategy solely on an analysis of competitor pricing could prove detrimental, particularly if other strategic market parameters are ignored.