Pricing Strategies
A firm must set a price for the first time when it is developing or acquiring a new product, when it introduces its regular product into a new distribution channel or geographical area, and when it enters its bid on new contract work. The two shopping networks: Home Shopping Network (HSN) and Quality, Value, Convenience (QVC) consider several factors in setting their prices. Since their products and services are deemed to reach millions of households in America, the firms consider the following factors before setting their prices: selecting the price objective in order to increase sales growth, determining the demand in relation to responses and testimonies, estimating the cost involved in online promotions, analyzing the competitor’s prices, costs, and offers, and more importantly selecting the pricing method or strategy.
In essence, the pricing strategies used by HSN and QVC include penetration pricing through promotion, product line pricing, destruction pricing, and psychological pricing. From the case study, both firms follow a penetration pricing strategy because when goods and services are introduced to the target market, they follow a reverse order – they start at a discounted amount or a rather low price in order to penetrate the market. These are shopping networks and hence there is a need to set a lower price for the introduced product in order to attract customers from different market segments. Same as penetration pricing, the firms use a destruction pricing strategy by selling a new product at an artificially low price in order to destroy other mail orders or online firms. Consequently, product line pricing is depicted in the case as both firms offer special case pricing according to the products being promoted; for instance “a special price might be good for a day—or an hour”. On the other hand, psychological pricing can be derived from the way the firms set their payment plans. For example, HSN’s pair of earrings is priced at $199.95 instead of $200, and QVC’s bird birth costs $87.84 instead of $88.
Promotional Pricing
This pricing is common in both firms especially during the introduction of a new item to the customers. The potential benefits of this approach are:
- Invitation: It targets buyers who are searching for new deals and are willing to engage in the transaction now. As for the case of HSN and QVC buyers are invited for purchases through discounted prices.
- Communication: This approach gains attention from the customers and provides information that may stimulate the demand for the products being promoted.
- Promotional pricing increases sales due to high demands, hence clearing excess inventory.
- Incentive: It includes some discounts, inducement, or contribution that gives consumers the value for their purchases. For instance, the pricing of the special event is exercised by the firms.
On the other hand, there are some drawbacks of promotional pricing which may interfere with the marketing objective of a firm. These include:
- High promotional costs in case the product is not well received in the market.
- Promotional pricing or discounts can raise doubts about the quality of a product and thus consumers may view the product negatively.
- There may be increased price sensitivity, in case of changes in prices leading to a weakened brand.
Low Prices and Consumer Perceptions
In the process of selecting, organizing, and interpreting information input through the shopping networks, consumers are able to produce meaning from a product. In regard to the perception of quality, different consumers have different attitudes towards the market products. A low price may be seen as a low-quality offer by a certain market segment as opposed to a better product value by a different market segment. To support this view: outlining the two most common marketing concepts may be appropriate. Firstly, the production concept proposes that “consumers will favor those items that are readily available and low in cost” and secondly, the product concept states that “only those products that are of high quality and having innovative features are favored by consumers”.
Conclusion
Therefore, there is a need for the firms to understand the behaviors of various consumers in different market segments in order to set prices that are in line with the desired quality of the product. This will enable them to balance the two concepts. Since the firms have a capability of interactive marketing, they should opt to gather information relevant to the consumer perception and try also to educate consumers on various products and services, thus segmenting their markets. Other psychological influences such as motives, attitude, personality and self-concept, and lifestyle are to be considered in order to set favorable prices.