What is Underpricing?

Pricing is one of the most important components in marketing. It mainly studies the strategy of setting and changing the prices of goods and services in order to obtain the best marketing results and benefits.

[dìng jià]

Pricing, yes

influences

There are many goals for pricing. Different companies have different goals in different periods and different business units. The clearer a company or department is about its goals, the easier it will be to set prices. Generally speaking, there are several goals: the highest current profit and profit margin, the highest current income, the highest sales growth, the highest market skimming, leading product quality, and maintaining survival.

Highest priced current profit

The profit target is an important part of the enterprise's pricing target. Obtaining profit is a necessary condition for the survival and development of the enterprise, and it is the direct driving force and the ultimate purpose of the enterprise. Therefore, the profit target is adopted by most enterprises. In actual work, when we increase the price of a product by 5%, sales may fall by 5%, but some companies will still adopt this strategy because the operating profit will exceed the level before the price increase. For companies to investors, they will consider many indicators, one of which is the profit margin on sales. If Company A had a sales of 1 million and a profit of 100,000, its sales profit margin would be only 10%, which would not be welcomed by investors. And if it is company B's sales is 500,000 sales and profits 80,000 profits. On the contrary, it will be affirmed by investors, because the sales profit margin rises to 16%. Although the company's total revenue is declining, investors prefer Company B because Company B's sales profit margin is 16%. Therefore, investors pay more attention to the profit margin of sales rather than the total sales profit. Of course, the premise is that this income is sustainable. If you sell some departments or assets of the company, you can make a lot of money in the current period, but this is not sustainable and does not meet the requirements of investors.

Highest priced sales

Many Chinese companies are pursuing the scale of their enterprises and want to become Fortune 500 companies. In fact, they are not pursuing the Top 500, but the Big 500. In Fortune Magazine in early 2008, there were a large number of corporate net profits that were negative, but they were still among the top 500 because Fortune Magazine considered sales. The criteria for business weekly selection are different. Many indicators are considered and a final result is obtained. There are cultural factors in the pursuit of scale of an enterprise, and many times it is to grow bigger and stronger. For example, in order to enter the Fortune 500, through mergers and acquisitions, the company will first increase the sales scale or seek to go public, which just needs to increase sales. Therefore, the purpose of different enterprises in different periods is different.

Highest priced market share

Some companies want to maximize market share. They believe that the higher the current market share, the greater the future profit opportunities. This pricing goal is used more often when a company enters a new market segment. Taking Taobao as an example, Ma Yun initially entered the C2C market in order to meet the possible challenges of eBay. Through continuous investment for many years, Taobao often provided a free trading platform. Higher-profile announced that it will invest another 5 billion in Taobao in the next few years. He is considering market share. Although he does not make money at this stage, he will still make money in the long run. Of course, there is another type of company that doesn't even consider market share. It can change money as long as there are clicks, so different companies think differently at different times.

Highest priced skimming market

Many companies set high prices to "skim" the market through their own innovations and product differences. Sony is typical of skimming pricing in the market. At first, it set the price of new products high, and then gradually decreased. When Sony introduced high-definition color TVs for the first time in 1990, the price of this product was as high as 43 000 US dollars. As competitors entered this market segment, by 1993 the company had reduced its price to $ 6,000. At the end of 2004, 42-inch high-definition color TVs dropped to $ 1,200 in Japan. By setting high prices, companies can obtain high skimming profits, which is what most companies hope to achieve. Of course, to achieve this pricing goal, there are conditions. For example, the high price of a product must be recognized by the customer's value, and the number of customers is sufficient to constitute the current high demand.

Leading pricing product quality

Creating products with high perceived quality, taste and status is the pursuit of many companies. These products occupy the high-end of the market through their brand influence that is different from competitors and consumers' high recognition of product image. For example, Apple's iPhone, iPod MP3 player, Mercedes-Benz, Evian Shampoo, Viking series products, IBM computers and Starbucks coffee are all leaders in the industry's product quality. Through the quality, taste and high price of the product itself, it has made a lot of profits Stable and loyal customer base. To build such a brand, the key is to change the customer's perception of the product through marketing and excellent product quality, which may take a very long process.

Pricing to survive

When businesses face overcapacity, fierce competition, or changing consumer demand, they make survival their primary goal. Take Volkswagen as an example, it entered the Chinese market around 1982 and achieved great success. The reason is not how successful his market has done, but that his decision was correct, and "adventure" established two joint ventures in China. Due to an environment where there is no competition and the supply of products exceeds supply, a single model of Santana can be sold for more than ten years, and once the domestic market share reached more than 50%. However, in the 1990s, as more American, Japanese, and Korean companies entered the Chinese market in the face of increasing competition, Volkswagen hoped to maintain its original market share. Although it took many measures, it could not change its share. The decline has now fallen to about 20%.