Pricing as the determinant of future, acceptability and profitability of products

 

                          

        Pricing is the process whereby a business sets the price at which it sells its products and services and may be part of the business marketing plan. It is also an act of fixing the value that a manufacturer will receive in exchange for services and goods. The pricing method is exercised to adjust the cost of the producer's offering suitable to both the manufacturers and customers.  It can also be defined as the process of determining an accurate price of products. It is about the setting price of goods and services of business enterprises and influencing their overall demand to a great extent.  It is an integral part of a product that needs to be considered wisely by every organization in addition to its quality.

        A product without a normal pricing method cannot exist in the market, and may eventually fail and bring in losses to the enterprises. Right–priced products are always preferred by customers over highly or inaccurate-priced products. 

         Concept of pricing:  To attain the company’s organizational goals, pricing decisions are taken by the top management. This help the company to reach its overall goals, these are sales volume image building, owners' interest and many more.  Price is determined according to the product life circle stage and the country's competitive situation in the case of international marketing. Because of that, each business shall take all necessary steps on the products to survive today's highly competitive market.

         Type of pricing:  Many pricing strategies are described below:

    Competitive pricing: This is the type of pricing where competitors' prices form the fundamental for deciding price by certain business enterprises.  The management analyses the price charged by their competitor's market and accordingly set a higher or lower price for their products. It is a very useful strategy for firms that have just started the enterprise and do not leave any opportunity for growth.

     Penetration:  It involves fixing lower prices to enter a new market.  It helps attract customers towards a product by offering cheaper prices to develop a large customer base.  Penetration pricing also acts as a determinant of competition as newer firms, as it enters the market, the product has to sell at lower prices by sacrificing their profit.

   Cost-plus pricing: This is the simplest form of pricing method in which the key basis of setting prices is the overall cost incurred in the protection of the product. Ventures adopting this strategy, sum up all costs associated with product creation, be it fixed cost or variable cost, and finally, add some percentage to it before getting to the final price.  Cost-plus pricing will always yield profit for business unless and until all costs and sales have been calculated accurately.

        Geographic pricing:  In this type, the company charges a different price for the same product/service in different geographic markets, the price of products differs with changes in its geographic locations.

       Discount pricing: A pricing method in which products are sold at reduced prices. Such discounts may be seasonal, loyalty rebates, buy one and get one free, quantity, and promotional type.

 

       Economic pricing: It is a pricing type that adopts a basic and low-cost marketing strategy. It is a common type with wholesalers and retailers.  The prices are set low for goods to target sales at a highly-priced- sensitive segment of society/ community.  It is to generate a large amount of money by making huge sales volume.

     Price skimming pricing:  This is known as skim–the–cream pricing is being used by a company to enjoy a strong competitive position in the market.  The company enters the market with high-priced products to make larger revenues.

     Demand pricing: In a situation where the price is set according to the demand of the customers in the market, it is known as demand-based pricing or customer-based pricing.

       The objective of pricing:

     Pricing types are key to the determinant for the survival of a firm in the market. In a highly competitive environment, appropriate pricing is a vehicle for running a successful business.   Firms cut their prices to grip customer attention when competing with different types of competitors.

     Maximization of profit:       Profit maximization is one of the important objectives of pricing. Companies take their pricing policies as a key tool for maximizing their profit level. The price of a product is set in keeping in mind the firm objective of generating higher profits, sometimes; it is difficult in a competitive environment.

        Growing sales volume:   Pricing has a unique role to play in attaining the sales-oriented objectives of a business. When a company wants to raise its sales volume, therefore, prices are set in such a way, to boost overall sales. It is then assumed that if sales will get an increase, profit will also increase. 

         However, all pricing decisions, setting prices, and altering prices are done towards raising sales.

      Prevention of competition:      

                    Pricing helps in preventing the rate of competition in their product market.  Pricing decisions of a company deny entry of new competitors by the setting of low prices that discourages the competitors from the market entry with a similar range of products.  When a company set up a lower price for its product, then marketers are more likely to incur losses.  It discourages new competitors from selling their products in the same market.

    Attaining market share:

          Pricing carries the fundamental objective of maintaining market share. Market share is the main indicator of the success of a company’s marketing strategies.  As market product holds more are its chances of getting success.  A company can enjoy economies of sales when it acquires the largest market share objectives by the business which may be either to increase market share or decrease market share.

Early recoupment of investment:

      The period it takes to recoup is known as the payback period, it is the length of time it takes to recover the cost of an investment or the length of time an investor needs to reach a breakeven point. What can help to achieve this is the good spacing system adopted by the company's management.

 Disposal of surplus:

  Producer surplus occurs when goods are sold at a higher price than the lowest price the producer was willing to sell for.  In the same vein, if an action house sets the opening bid at the lowest price it will normally sell a painting, a producer surplus occurs if buyers create a bidding war, thus causing the item to sell for a higher price far above the opening minimum. Surplus also occurs when there is a sort of disconnect between supply and demand for a product when people are willing to pay more for a product than others. Hope, the healing, if there were a set price for a certain popular doll was unanimously expected and willing to pay, neither a surplus nor a shortage would occur, thus rare happens in practice because various people and businesses have different price thresholds- both when buying selling.

    Results:    Surplus causes market disequilibrium in the supply and demand of a product. This imbalance means that the product cannot efficiently flow through the market. Fortunately, the cycle of surplus and shortage has a way of balancing itself.

   Price stability:  How domestic currency retains its purchasing power by maintaining low and stable inflation as measured by the consumer price index over the medium term (3 to 5yrs). Price stability does not indicate that price does not change; it implies that prices grow at a moderate rate.

      Pricing as a competitive weapon:         Pricing is one of the determinant elements in the business strategy.   It determines your sales profitability and growth.  Nowadays, pricing needs to be real-time, flexible, and personalized to your customers and products.  The pricing you set sends a message to some customers about your business product and creates a perceived value.  This affects your brand image or position in the marketplace, for example, higher prices tell some consumers that you have higher quality and would be able to change those prices.

   Pricing regulation:       The weak and financial vulnerability sections of the society need to be regulated from the rise in the general price level. The rise in price level is a sign of a fall in the money value; it means that more units of money should be given for purchasing the same commodity.    At higher prices, buyers lower their demand and if demand increases, then the supply increases. However, the supply of different products responds to demand being less sensitive to prices than others.