Student Question

What is the difference between pricing policy and pricing strategy?

Expert Answers

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Pricing policy is the determination of what price a business will charge for a product or service, and this price determination is made by considering

  1. costs of production,
  2. value of the product or service,
  3. demand for the product or service, and
  4. competition for the product or service in the marketplace.

Pricing policy reflects a business's market understanding and it's ability to take risks. It is pricing policy--based on costs, value, demand and competition--that allows management to set pricing strategy.

Pricing strategy is the use of pricing policy to identify a product's or service's optimum price in the marketplace. Pricing strategy is developed through determining the business's overall marketing objectives and overall consumer demand; through identifying distinguishing product attributes and competitors' pricing schemes, and through recognizing market and economic trends (Business Dictionary). Pricing strategy uses pricing policy to determine the best ways to meet the business's strategic pricing goals, be they any of these:

  • increased sales
  • higher prices
  • lower prices and higher sales volume
  • decreased sales order backlog waiting to be filled
  • increased short-term profit
  • stabilization of prices
  • increase of cash flow

Pricing strategy is a more complex concept than pricing policy. Pricing policy generates the development of pricing strategy, but pricing strategy is directed toward attaining the company's goals, whereas pricing policy is determined by the product or service offered. Pricing strategy is aimed to meet customer demand but is targeted at the competition, while pricing policy is aimed at maximizing profitability. Pricing strategy takes many factors into account, such as established companies and new entrants in the market, as well as other factors, including:

  • customers
  • company pricing goals
  • various market segments
  • economic conditions
  • market sector conditions
  • strength of competitors

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