Developing Pricing Strategies and Programs - Strategy Essay Example
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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.)
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”.
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
1. Studying organization and Marketing Objectives
2. Deciding an Initial Price of a product
3. Setting Standard Price Adjustments
4. Deciding Promotional Pricing
5. Setting state Ownership and Payment Choices
(Steps in the Price Setting Process, n.d)
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.
In order to induce buyers for purchase organization may apply different pricing techniques
It has been observed in both super and retail stores that they frequently drop products’ prices to generate extra sale.
Product Marketers in certain seasons draw special products’ prices to raise sale volumes.
Normally this type of rebate is giving by car manufacturers and other customer goods organizations to encourage buy of the manufacturers’ products within a limited period of time.
Low Interest Financing
In this regard, rather than cutting products’ prices, organizations offer their consumer low interest financing.
Warranties and Service Contracts
Undoubtedly, organizations can generate sales by putting a gratis or low costs warranty or service contract with its customers.
Particularly, this sale promoting strategy typically involves artificial raise in price of a product and then offering the same product at significant saving.
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.
Product Mix Pricing
Normally, 6 different situations involve in product-mix pricing.
Product Line Pricing
Usually, organizations establish product lines instead of a single product and present price steps.
In this regard, organizations offer their customers products optional services, such as after sale services and so on.
With respect of this products need the use of ancillary or captive products.
Organizations who provide only services normally engage in two parts of goods pricing, firstly, fixed amount of service fees, secondly, fixed amount plus variable service fees charges.
Some goods production result from by products such as petroleum products, some chemicals and so on. In this regard, a firm must consider value of by products before adapting price.
When ever an organization just offers its products as a bundle this type of product bundling takes
In this regard, organizations offer goods to their consumers both individually and in bundles. However, a product seller normally charges higher prices when offering a mixed bundle. (Not Available, n.d.)
Initiating and Responding to Price Changes
After successfully establishing their pricing strategies, organizations frequently face situations in which either they have to cut down or raise products prices.
Initiating Price Cuts
From numerous circumstances which may lead an organization to cut its prices, one is called excess capacity circumstance. When facing this situation an organization requires surplus business. However, organizations may not derive it by enhance sale attempt, improvement in product and so forth. “It may abandon “follow-the-leader” pricing and resort to “aggressive” pricing to boost its sales. But in initiating a price cut, the company might trigger a price war, as competitors try to hold on to their market shares”. (Industrial Marketing, n.d.)
Declining Market Share
Decline in market share is another significant circumstance. In this regard, numerous US industries such as watches, toys, cars and others have lost market share to Japanese competitors. In order to recover the loss, some organizations have recurred to more belligerent pricing activities.
Dominate Market through Lower Costs
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.
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.
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
Industrial Marketing, (n.d)
http://www.pondiuni.org/DDE/Industrialmarketing.pdf Accessed, September, 16 2007
Murdock Kathym, (September 10 2007), Do Your Research before Setting a Price for Your Business Product or Service
Accessed, September, 16 2007
Not Available, (n.d.)
Accessed, September, 16 2007
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
Steps in the Price Setting Process,(n.d) Setting Price Tutorial
Accessed, September, 16 2007
Welcome to World All Products, (n.d.)
http://worldallproducts.com/forum.asp?ForumID=38 Accessed, September, 16 2007