Developing Pricing Strategies and Programs

Introduction

In today’s world of complex business, it has been proved by many researchers that product pricing is a most crucial profit driver. In this regard, both developed and developing organizations frequently check their products prices through consumer demands and other theories to get maximum profit from customer. To achieve this objective often organizations compare their products with pricing. Obviously, pricing strategies give organizations experienced set of tools and framework for developing their pricing strategies.

In this regard, “Pricing refers to the amount of money exchanged for a product. This value is determined by utility to the consumer in terms of money and/or sacrifice that he is prepared to give for it”. (Welcome to World All Products, n.d.)

Understanding Price

Different organizations with different products prices evaluate consumers’ buying behavior. If an organization fail to understand the right price of a product, it would not be possible for the organization to get maximum profit from its customers. The simple rule for understanding a product’s price is to compare price with its quality, wholesomeness, and so forth. Certainly, consumers have an idea about products and it cannot be said that expensive products always have better qualities to meet consumers’ demand. According to Reilly “the key to understanding price objections is first [customers are] going to test your price, and second they’ll test your resolve”.
(Sanders, 2006)

If an organization wants to earn maximum profit, the organization should have to understand the psychology of price, if understand this psychology, an organization can best negotiate product’s price and can earn maximum profit. In this regard, an organization should remember that a product’s price is a main marketing decision and hence deserves attention and researches similar to other 3 marketing elements. Certainly, when establishing your organization’s price, it will be useless to discuss an organization’s internal costs and hours. Instead of an organization must pay heed on the value of a product he provide and price accordingly. (Baker, 2004)

Setting a Price

Some organizations believe that if they launch products with lower price or cut their products’ price low, they can do better business. Obviously, it make sense, an organization who manufactured a product similar to other and put a tag price lower than other can beat their competitors in price. Consumer after discriminating your product’s price and quality with others can buy your product rather than other companies. Interestingly, most of the times it has been seen that organizations suffered a huge losses by setting their products prices low to compete others.

Certainly, at both domestic and international level consumers normally look for two similar products and compare products with both price and material used in manufacturing. If a consumer found slight difference of one or two dollar he or she will definitely go for the cheaper. On the other hand, if the two products are identical, and consumer found difference of dollar 3 the consumer will astonish and ask with himself that why the company has marked its price too low.

Murdock  (2007) believes “if you do set your price considerably lower, chances are you are eating into profit. If these items begin to sell out and you haven’t priced them high enough to not only cover costs but to make a profit, you’ll have to eventually raise the price in order to cover costs. It’s never good to go up in price, and you certainly don’t want to lose a ton of money from the get go because you priced too low”. (Murdock, 2007)

An organization must research before setting up the product’s price. Because it has been seen that normally organizations failed to do business when they failed to provide consumers products that best meet quality according to the price.

In this regard, many factors can be taken into consideration when setting up a product’s price. And this can be described by the following five step process: by

• Studying organization and Marketing Objectives
• Deciding an Initial Price of a product
• Setting Standard Price Adjustments
• Deciding Promotional Pricing
• Setting state Ownership and Payment Choices

In this regard, counter-trade, barter and cash are some of the main elements which involve in selecting that how an organization sets its product’s price to various consumers in various nations. Another important factor for organizations is how to get paid, this factor is very crucial when consumers lack currency power to pay out for the purchased product. In this regard, many consumers desire to use other items in payment, and this practice of payment is known as counter-trade.

Price Discounts and Allowances

In this regard, many organizations do prefer to adjust their products’ list price and give consumers purchase allowances and purchase discounts for early payment of a bill. In today’s world of business, many organizations offer these types of allowances and discounts for early receiving of payment from consumers. In these allowances and discounts conditions usually all organizations sell off season and outdated goods. Normally these types of allowances and discounts are available at large level of purchasing such as in B2B dealing. And these allowances typically include functional discount, cash discount, quantity discount, seasonal discount and so forth.

Discriminatory Pricing

Often price discrimination takes place when an organization sells its products at one or more fix rates that do not ponder a relative different in product’s cost. However, if an organization wants that price discrimination must work, for this certain following conditions must be present:

1. Presence of segment-able goods market that should show various volumes of demand.
2. In an open market all the sellers of a lower price segment should be in a position to sell product again in a lower price segment but not in higher price.
3. In an open market of competition all involved competitors should not be in a position to undersell the firm in the higher price segment.
4. Both policing the market and total cost of a segment should not be exceed the surplus income generated from price discrimination.
5. The practice should not engender consumers’ bitterness and ill will.
6. The particular form of price discrimination should not be illegal.

Many organizations also start price cuts in a quest to dominate the market by lower costs strategy. In this regard, an organization either initiates with inferior costs than its competitors or adopts price down policy in search of winning market share, which would lead to declining cost by bigger amount and more experience. Often it has been observed that individual show waged a belligerent inferior price strategy and achieved a huge amount of market share. Nonetheless, a high risk is involved in this pricing strategy.

Conclusion

By and large, pricing strategies play a fundamental role in firms business. All above discussed factors are the key concepts in price setting strategies. Hence, if an organization fails to understand the right price of a product, it would not be possible for the organization to get maximum profit from customer.

References

1. Baker R J, (January 24, 2004), Pricing Psychology: The Secret? Provide More Value than the Customer Pays http://accounting.smartpros.com/x8815.xml Accessed, September, 16 2007
2. Industrial Marketing, (n.d) http://www.pondiuni.org/DDE/Industrialmarketing.pdf Accessed, September, 16 2007
3. Murdock Kathym, (September 10 2007), Do Your Research before Setting a Price for Your Business Product or Service http://www.allbusiness.com/specialty-businesses/women-owned-businesses/4834928-1.html  Accessed, September, 16 2007
4. Not Available, (n.d.) http://www.vidskiptarad.is/glosur/290_KMarkadsfrI_nr.3.doc Accessed, September, 16 2007
5. Sanders Seiche, (August 2006) Pricing: Point … Counterpoint http://www.cleanlink.com/SM/article.asp?id=5063&keywords=pricing%20pressure,%20price%20objections Accessed, September, 16 2007
6. Steps in the Price Setting Process,(n.d)  Setting Price Tutorial http://www.knowthis.com/tutorials/principles-of-marketing/setting-price/1.htm Accessed, September, 16 2007
7. Welcome to World All Products, (n.d.) http://worldallproducts.com/forum.asp?ForumID=38 Accessed, September, 16 2007