price-setter

Are You A Price Setter Or A Price Taker?

A price maker is a player who sets the price, independently from what the market does. The price setter is the firm with the influence, market power, and differentiation to be able to set the price for the whole market, thus charging more and yet still driving substantial sales without losing market shares.

Price setter vs. price taker

While the price setter influences the whole market, or it ignores it by charging premium prices without losing momentum in sales or losing market shares. On the other end, the price taker has to run behind the market, follow the trends, lower prices, just to keep up with sales momentum.

What makes the price setter different from the price taker?

Differentiation

The price setter isn’t just the dominant player in a category. Often it’s the player who has such a differentiated product, that nonetheless it charges premium prices it can still grow. Companies like Apple, Dyson, and Tesla are great examples.

They created a whole new category turned into a market itself (ex. Apple: smartphones, and tablets). And their brand is such a synonym with that category that they can retain market shares and still charge high prices.

Distribution

apple-distribution-strategy

The price setter also has great control over distribution. A company like Apple has been able for years to charge premium prices on its iPhone because beyond selling them in their stores, also sold them through indirect channels (carriers, cellular networks, and more) who through financing also abated the cost of the device for average people, thus enabling a much wider number of people to purchase an otherwise too expensive device.

Connected Business Concepts

price-skimming
Price skimming is primarily used to maximize profits when a new product or service is released. Price skimming is a product pricing strategy where a company charges the highest initial price a customer is willing to pay and then lowers the price over time.
e-commerce-strategies
Some of the key strategies to take advantage of Amazon’s platform are about understanding customers’ needs, using testimonials and reviews, improve product variety while offering competitive pricing. While price and variety matters, it also matters to differentiate your offering compared to existing players.
value-investing
Value investing is an investment philosophy that looks at companies’ fundamentals, to discover those companies whose intrinsic value is higher than what the market is currently pricing, in short value investing tries to evaluate a business by starting by its fundamentals.
pricing-strategies
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
bowmans-strategy-clock
Bowman’s Strategy Clock is a marketing model concerned with strategic positioning. The model was developed by economists Cliff Bowman and David Faulkner, who argued that a company or brand had several ways of positioning a product based on price and perceived value. Bowman’s Strategy Clock seeks to illustrate graphically that product positioning is based on the dimensions of price and perceived value.
bye-now-effect
The bye-now effect describes the tendency for consumers to think of the word “buy” when they read the word “bye”. In a study that tracked diners at a name-your-own-price restaurant, each diner was asked to read one of two phrases before ordering their meal. The first phrase, “so long”, resulted in diners paying an average of $32 per meal. But when diners recited the phrase “bye-bye” before ordering, the average price per meal rose to $45.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"