Article Review `Kamikaze Pricing - Education Essay Example
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Article Review `Kamikaze Pricing’
The article “Kamikaze Pricing” explores the benefits and perils of penetration pricing strategies; that is, undercutting competitors’ prices in an attempt to gain a market share. When taken to an extreme — one which ultimately damages the progenitor company — and the result is a net loss in profit, sales, or product viability, penetration pricing, according to the article may be considered “kamikaze” pricing. In technical terms “kamikaze” pricing happens when “the justification for penetration pricing is flawed,” which in simplistic terms indicates any condition by which the belief that lower prices will promote higher sales proves to be mistaken.
Knowing the difference between “kamikaze” pricing and solid pricing strategies, even those which are penetrative and perhaps risky is an important part of all business and business management, especially those aspects which pertain to providing for profitability and understanding risk-benefit analysis. All modes of pricing are, in effect, modes of cost benefit analysis; however, pricing carries with it, as the Holden/Nagle article points out superlatively, not only considerations of direct financial cost/benefit but in buyer psychology and consumer attitudes as well. Defining the price of your product, according to the article, in many ways defines the product itself.
In my opinion, the thesis of the article is quite sound; it is dangerous to make the specious assumption that low prices will net higher sales, just as it is specious to assume that penetration pricing is always a risky bet. Should a marketer choose to pursue skimming or neutral pricing, there will be, also, inherent risks and cost benefit ratios to these practices as well as the more aggressive practices of penetration pricing. That the Holden/Nagle article seems to advocate the thorough understanding of all three modes: skimming, neutral, and penetrating in the consideration of marketing is, by my reckoning, one of the strongest aspects of the article. In other words, the article encourages an holistic approach to determining pricing strategy. This approach is solid in conception and echoed by many other marketing specialists who routinely suggest that “pricing strategy is never derived in isolation of other components of the marketing mix” which means pricing strategy alone cannot hope to bear the burden of marketing. (Paley, 2006, p. 319)
That said, the fact of pricing in marketing is one of the key factors in all sales and manufacturing paradigms. Obviously, it is important to view pricing as a key component of all marketing strategies, even those which advocate skimming, rather than penetration pricing:
Prices make the world’s economy go round and to anyone who sells anything under the sun, pricing is the most crucial pivot of business, the ultimate economic leverage according to some pricing experts. Raising prices even a bit can automatically result in a dramatic increase in profits and implementing a right or wrong pricing strategy can easily make or unmake your bottom line!
(“BUSINESS OPTIONS; Pricing Your,” 2006, p. NA)
As Holden and Nagle observe, “playing the price card is often a reaction to a competitor and assumes that it will provide significant benefit to the fir m” whether or not this “card” is one which represents a skimming, penetrative, or neutral pricing strategy. Companies should always be ready to recalibrate their pricing strategies and should have contingency plans for market conditions or for possible changes in consumer trends, patterns, or the activity of the competition. This means, a marketer must balance between the supply and demand realities of the marketplace and the perceived image of the marketed product among prospective consumers. It is one thing to shift prices and float new contingencies based on market conditions, it is another thing altogether to maintain a product identity in the consumer consciousness while price changes are taking place to meet market-needs or to exploit a perceived opportunity; of utmost importance i s the fact that “pricing affects the product’s image in the customer’s mind” (Paley, 2006, p. 319).
An example of how consumer psychology impacts issues of pricing is the fact that, once a “penetration” price is associated with a product it is often very difficult to sway consumers to purchase the product at a skimming or neutral price. In other words the price intrudes upon the question of : “What perception or image do customers hold in their minds about your product?In general, it is difficult to regain a premium price position for the same brand once it has been diluted by low price promotions through mass merchandising outlets” (Paley, 2006, p. 320). So, more considerations than merely those of perceived immediate profitability should be considered in pricing; there are also long-term consumer associations at play.
In conclusion, I feel,the Holden/Nagle article excels at forwarding an holistic appraisal of the crucial importance of pricing in marketing and that this appraisal is set forth in a comprehensive and quite topically rich fashion. of utmost importance according to the article’s positions, is that marketers take into account both the fiscal and psychological repercussions of their pricing strategies.
By understanding the core concepts of skimming, penetrating, and neutral pricing, along with the utterly undesired “kamikaze” marketing, the student of business will be more able to visualize and comprehensively integrate the notion of pricing as a central and primary aspect of product image and also for economic viability. By understanding the virtues and possible risks of each of these pricing strategies, the business student will learn to recognize unique opportunities and — also — identify potential hazards in marketing.
BUSINESS OPTIONS; Pricing Your Product for Profit. (2006, January 5). Manila Bulletin, p. NA.
Paley, N. (2006). The Manager’s Guide to Competitive Marketing Strategies (3rd ed.). London: Thorogood.
Holden, Reed K. and Nagle, Thomas T. Kamikaze Pricing (1998, Summer) Marketing Management, p. 31-40.