Introduction
Price decisions are crucial to the subsequent demand for the product and the success of marketing strategies. According to White (2019), these decisions should be made based on specific factors: “cost to produce the product, target market, environment, differentiation strategy” (p. 1). This paper describes three basic pricing strategies and applies them to classify the major pizza chains based on exploring the online ordering process.
Basic Pricing Strategies
In marketing, the three core pricing strategies are neutral, penetration, and skimming. Penetration strategy is focused on lowering the price compared to competitors and is well suited for expanding business and attracting new customers. However, in the mature market, where consumers already know which product they prefer, they are unlikely to be attracted by a cheap option. The application of a neutral strategy is based on setting prices according to the average market level.
This is the least risky strategy, but it does not differentiate the company’s products from those of its competitors, nor does it provide opportunities to maximize profits. Price skimming is determining the highest price that the consumer would pay based on the product value. This strategy, for instance, works in a market where the customer is willing to pay for an advanced product with specific characteristics.
Major Pizza Chains’ Pricing Strategies
It should be pointed out that the pricing policy of Little Caesars is the most consistent with the penetration strategy. While the retail chain only sells large pizzas, the classic pepperoni costs $5. The companies Pizza Hut and Dominos follow a neutral pricing strategy. The medium pepperoni pizza in the first case costs $13.74, and in the second case – $15.49. They are approximately the same in calories – 1840 and 1680 respectively, but both are inferior to Little Caesars, where it exceeds 2000. The skimming pricing strategy is most peculiar to California Pizza Kitchen. The medium pepperoni pizza costs $15.99, is the lowest by weight, and includes the smallest calorie count – 1140.
This exercise has changed my perception of these chains’ pricing strategies with regard to their relationship with quality and quantity. It seemed to me that a greater amount should be offered at a higher price. However, as the price went up, the quality of the product increased, and it became possible to customize it, while the mass decreased. The primary factor that complicated price comparison was that companies do not offer equivalent pizza size.
For example, Little Caesars only offers large pepperoni, while there is no such item in the California Pizza Kitchen menu. Besides, the comparison was obstructed by various cooking options for the same pizza, such as crispy or low-calorie variants, which differed in price. It was also complicated by default presence of ingredients, which in other cases could only be added during the customization process.
In my opinion, the California Pizza Kitchen retail chain represents the greatest value for the consumer. When developing a pricing strategy, this company follows a value-based approach. It consists of “using buyers’ perception of the customer value equation to design an offering that can be sold profitably at a price buyers recognize as fair” (White, 2019, p. 2). This retail chain offers a high-quality product and a large number of options to change it, which correspond to its price.
The penetration strategy is based on the correlation of the price with the one offered by competitors, which may have an adverse effect on the quality of the product. The neutral strategy does not distinguish the company and its product against the background of others. Thus, California applied the skimming strategy in the best possible way, providing the product, valuable to the consumer, and a higher price, which distinguishes it from competitors.
Conclusion
It should be noted that pizza retail chains presented above give examples of all types of pricing strategies. Meanwhile, depending on the chosen strategy, both the quality and the quantity of the product offered for a specific price change. California Pizza Kitchen applies a skimming pricing strategy, offering the buyer a premium quality product, thus gaining an exceptional value.
Reference
White, S. (2019). Principles of marketing (2nd ed.). Web.