A good price strategy not only could let company earn a huge market share, but also could increase the entry barriers in a certain industry.
Here is a good example:
Hewlett-Packard (HP) have found a new print technology, this technology could increase the ability of its printer, and get a better print effect. HP faced a problem, which is how much it would charge? Charge a higher price based on the new technology or keep the same price as other HP printer?
The top managers analysis the situation as following:
“So far, HP’s competitors sell the same mode of printer at $150. If HP charge a higher price based on the new technology, for example, if charge $250, the profit is $100, and the gross profit rate is two times as charge $150. However, the potential entrants will see the opportunity and try to enter the same market. The competitors may input more to get an even higher print effect. Then later, there may have a price war, which could lead a mess market and hurt HP’s advantages.
Since considered this situation, HP decided to charge $185. HP only could earn $25 profit each unit, but this price could avoid the potential entrants to enter this market. If new entrants spend more to compete in this market, HP plans to lower its price to $160-$175, and make its competitors cannot get the return on investment, and even loss in this market.”
HP’s pricing strategy made itself loss some profits, but it earned the most market share, and avoids its potential competitors to get into this market.
Another price strategy is called psychological pricing strategy, which needs to understand customers’ felling on the price.
Here is an example:
Ms. Liu opened a store to sell clothes, and there are several clothes still cannot be sold for a long time. Then she increased the price from $20 to $60, and put them into a high level clothing store. 3 days later, her clothes were sold out. If one product looks like it is in a very high level, people may willing to buy it with a high price since they may think this product (this price) could represent their Identity.
Sometime we should understand what our customers need, and make a right pricing strategy. Sometimes, even a higher price could earn more customers.