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3.5.6 Pricing Strategy
Pricing is one of the most fundamental but also most difficult decisions that
firms have to make. For business organizations, price is the only element
which generates revenue, all other elements; product, promotion, and place
are costs (Kotler & Armstrong, 2012). Likewise, if effective product
development, distribution and promotion sow the seeds of organization
success; efficient pricing strategy is the harvest. However, effective pricing
strategy can never compensate for elements (Moghaddam & Foroughi,
2012).
In order to make pricing sustainable, it must be integrated and consistent
with the other marketing mix strategies in the organization to achieve the
organization objectives (Obadia, 2013). Thus, proper pricing cannot be done
independent of the other marketing them as a firm touches one element of
the mix it touches them all. Regardless of the integration requirement and
importance, pricing remains the most versatile marketing mix strategy
(Moghaddam & Foroughi, 2012). Therefore, appropriate pricing strategy
remains a challenge for marketers these days. The relative importance and
complexity varies considerably from one product and market sector to
another. In service, for example, the degree of complexity of pricing strategy
is comparatively significant due to the high degree of homogeneity between
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most service groups and shared service delivery and operating systems
(Moghaddam & Foroughi, 2012).
As a result, pricing becomes even more challenging when it is made for the
first time in a firm. As firms stay in the business and frequently engage in
pricing, they become familiar with the process and pricing becomes more
familiar as a result (Moghaddam & Foroughi, 2012). In this regard, a firm
usually sets a price for the first time when it develops a new product, when
it introduces its regular product into a new distribution channel or
geographical area, and when it enters bids on new contract work (Kotler &
Armstrong, 2012). Furthermore, a firm must also consider factors which
affect the pricing decisions. In most cases, the dominant view of pricing
strategy claims that pricing goals, objectives, and strategies which should be
formulated a priori, and should be consistent with marketing and corporate
strategies (Simos et al., 2014). Besides, these are also factors which
influence the pricing strategies in a given firm and industry and hence
should be considered in the attempt to set the prices of a product (Wilson &
Gilligan, 2005).
The relative importance of these varies considerably from one product and
market sector to another. All of them, however, need to be taken into
account in the choice of the pricing method (Wilson & Gilligan, 2005). From
the researcher‘s perspective, it is essential for the textile firms to consider all
of them in general and the third factor in particular. Such particular
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significance of the factor for Ethiopian textile firms emanates from their
interest in the global market through opportunities created by AGOA,
COMESA, All but Arms, and some other bilateral and multilateral trade
agreements.
Similarly, pricing literatures suggest that firms set prices by assessing
customer elasticity and competitive prices and then set prices to maximize
profit (Ingenbleek, Marion, Ruud, and Theo, 2003). Whereas pricing
strategies are visible in the market in the form of price changes, price
bundles, price levels within a product line, or otherwise (Noble & Mokwa,
1999), pricing practices are hidden behind the boundaries of the
organization.
In addition to this, pricing strategies that the organization judges, or senses
to be effective, are repeated, shared, expanded, and refined into successful
pricing patterns that, over time and across situations, become pricing
strategy (Simos, 2014). Hence the firm needs to understand its discretionary
freedom where the upper boundary (price ceiling) and lower boundaries
(price floor) are set by different factors.
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