AbstractA company must always set a price when it creates a new product or penetrates a new distribution channel or geographical region, or on sourcing and entering bids for contract business. The price of a product is most important element in the marketing mix, since it generates direct revenue.IntroductionPrice is the only element in the marketing mix that directly generates revenue (Kotler, 2003.
p.44). A lower or higher price can considerably vary the gross margins as well as sales volumes. This directly affects other expenses.
There are various factors that determine the appropriate pricing strategy for a company.Topic 1 CommentMain Steps in the Price Setting ProcessSelecting the pricing objective is the first step. In this step the company decides what among survival, maximum market share, maximum current profits, product quality leadership and maximum market skimming. Survival is a short-range objective that may be pre-empted by a fall in demand for the product or changing consumer preferences.
Maximizing the market share entails setting the cheapest feasible price hoping improved volumes will reduce the cost.
Maximizing current profits is another short term objective. This may unfavorably influence long-term performance. In all the objectives, the application of price as a tactical tool is appropriate in order to allow costs or the market to establish prices (Kotler, 2003.
p.64).In the determination of demand, for the normal goods, quantity demanded and price are inversely related. That is, the higher the price the lower the demand.
In the case of luxury goods, as the price of the product increases, the higher the demand goes. In this step, collection and analysis of historical sales data, test-marketing the product in specific locations with higher or lower prices is important (Kotler, 2003.pp.64).
In the estimation of costs, there are two categories of costs, fixed costs and variable costs. The activity based cost estimates the actual profitability of selling to a segment of customers. It also facilitates designing of a product with a specific target market in mind. In analyzing the competitor’s costs, offers and prices, utilize the competitor’s prices as a point of reference for the company’s products (Kyle, 2008.
p.1). The competitor’s prices should be considered in relation to the cost structure and the likelihood for change in response to the company’s offering (Kotler, 2003.p.
66).In the selection of the pricing method, the perceived value pricing is used with a focus on the customer’s perception of the value of the company’s products. The company needs to create a positive image for its products. The value proposition of the company is tested in this method.
The going-rate pricing is used when pricing is determined by the competitor. In the selection of the final price, the relevant marketing activities are considered. Since demand determines the highest price for a product while cost determines the lowest price possible to realize profits (Kotler, 2003.p.
65), it plays a major role in this step. In this step, the company needs to ensure it remains unpredictable by the competitor. This will minimize vulnerability in relation to competition. Periodic monitoring of prices and the competition minimizes the chances of the competitor successfully undercutting the company in prices (Baye, Gatti, Kattuman & Morgan, 2007.
pp. 202-216).Analyzing Competitor’s Costs, Prices and OffersIn analyzing the competitor’s costs, offers and prices, the company must understand the competitor’s cost structure and the probability of the competitor changing their strategy in response to the company’s offerings. The recycling companies are in strong competition.
Since they have a common competitor in the landfill, the companies must develop their operations in order to attract demand for their services. Rumpke Recycling Company seeks to attract increased demand for services in order to have more control in the pricing of the landfills. The company has noted that in other regions the landfill tip fees are lower than in its area of operations. Rumpke Recycling Company utilizes the competitor’s prices as a point of reference for the company’s services (Sandoval, 2007).
Topic 2 CommentValue PricingValue Pricing is a method where the firm wins loyal customers by charging a fairly low price for a high-quality offering. This pricing method has two salient features: it checks erosion and cost of consumer assurance in the reliability of prices; it is consumer focused, minimizing the need for sales promotions and coupons (Kotler & Keller, 2005). This pricing method is appropriate since the customer gets value money in the sense that the market will always offer the same price regardless of the different market segments. This assures the customer that the product is worth.
The need for the customer to carry out market surveys in an effort to obtain the lowest price is eliminated.By setting one price without deviation, the customers benefit in that they can always be sure that the product is available regardless of the competition. The competitors will also create more innovative strategies to attract more customers such as offer add-ons and bonuses. The company will also cut advertisement costs since there will be minimal need to advertise for price offers.
ReferencesBaye, M., Gatti, J., Ruppert, J. & Morgan, J.
(2007). A Dashboard for Online Pricing. California Management Review, 50(1), 202-216. Retrieved March 27, 2009, from Business Source Premier database.
Kotler, P. (2003). Marketing Management, 11th Ed, New Jersey: Prentice Hall.Kotler, P.
& Keller, K. L. (2009). A Framework for Marketing Management, FourthEdition, NJ: Prentice Hall.
Kyle, B. (2008). 7 Pricing Strategies That Improve Profit. Concept Marketing Group Inc.
Retrieved 26 March 2009 fromhttp://www.marketingsource.com/articles/view/4139Sandoval, D. (2007).
Stepping Things Up: With Price And Demand For Secondary Commodities Increasing, MRF Operators Are Seeking Ways To Improve Their Operations. Recycling Today. Retrieved March 26, 2009, fromhttp://www.thefreelibrary.com/Stepping+things+up:+with+price+and+demand+for+secondary+commodities…-a0133911429
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