Pricing Decisions

The pricing decision is a basic one for many marketers; however, the measure of consideration given to this key zone is frequently substantially less than is given to other marketing decisions (Ellickson et al. 2012). One purpose behind the absence of consideration is that numerous individuals believe that price setting is a mechanical procedure that requires the marketer to use monetary tools, for example, spreadsheets, to construct their case for setting price levels. Although the financial tools are generally used to help with setting the price, the marketer has to consider numerous different factors so as to arrive at the price for which their services or products will sell. There are several influences on price namely customer demand, costs, competitors’ prices/behavior/ actions and regulatory environment which is legal, political and image related. In addition, the pricing decision needs to take factors such as competition, fixed and variable cost, company objectives, target group and willingness to pay and proposed positioning strategies (Ellickson et al. 2012).

Firstly, a company needs to take into account competition in the market when setting their prices. This kind of pricing decision should take into consideration the competitors’ prices/behavior/ actions. In the case of a stiff competition, the company should set a relatively low price so as to increase their market share as well as sales; however, when the market share is captured, the company may choose to maintain or increase their prices (Ellickson et al. 2012). On the other hand, the company can set an initially high price and then slowly reduce the price to take care of the customers’ willingness to pay. In addition, it makes the product available to a wider market thereby helping in attracting customers from their competitors. With regards to competition, the company needs to set a price in comparison with their rivals meaning they can set a lower price, the same price or higher price than their competitors (Indounas, 2006). For instance, a TV satellite company has to set a lower price in order to get the subscribers in the highly competitive market.

The second factors that influence the pricing decision are demand of the customers. There is a direct relationship between demand and price; all factors held constant, the higher the demand for an item, the higher the price it will attract. Therefore, companies need to set lower prices when the demand is low and higher prices when the demand is high. For instance, the prices of houses in New York City are relatively high because of the higher demand. Organizations need to set the right prices because pricing decisions that are made hastily with no adequate research, investigation, and vital assessment can result in the loss of revenue by the marketing organization (Ellickson et al. 2012). Prices that are set too low may imply the organization is passing up a great opportunity for extra profits. However, this may be the case if the target market is not willing to spend more to acquire such products. Moreover, endeavors to increase an initially lower price of a product to a higher price might be met by client resistance due to the feeling that the marketer is endeavoring to exploit their clients. Prices that are set too high can likewise affect income as it keeps intrigued clients from obtaining the item. Setting the right price level regularly takes significant market knowledge and, particularly with new items, testing of various evaluating alternatives (Shankar & Bolton, 2004).

The third influence on price is cost; fixed and variable cost. Companies need to set a price that incorporates their production costs and a set of amount known as mark-up based on the amount of the return or profit they would like to make (Indounas, 2006). Taking costs into consideration ensures that the price of a product covers its production costs; however, it fails to take into consideration consumer demand and competition which could place the organization at a competitive disadvantage. In addition to considering productions costs, market conditions need to be taken into account when setting prices (Ellickson et al. 2012). The price set by a company must reflect the entire regulatory environment which is legal, economic political and image related. For instance, Apple Inc., tends to charge higher prices because of its good corporate and public image (Indounas, 2006).

Finally, the pricing decision of a company needs to take into consideration factors such as company objectives, target group and willingness to pay and proposed positioning strategies. A company that intends to portray a high value of the product to the target customer needs to charge higher prices than competitors (Shankar & Bolton, 2004). The value of the product is usually based on the benefits the product provides to the customers, such as well-being, convenience, reputation or joy. Products with higher benefits have higher prices. For instance, the products offered by Apple have higher prices than those offered by Samsung because of the greater benefits that Apple products offer to the consumers. The prices of such high-quality products are set high to indicate that they are exclusive such as first class airliner services, Harrods and Porsche (Ellickson et al. 2012).

An example of a company that has used a purchasing strategy in improving their financial impact is Starbucks. It has implemented purchasing strategies so as to make purchasing decisions that are cost effective from a group of many efficient suppliers who delivers quality goods on time (Benton, 2013). Starbucks uses centralized purchasing so as to make procurement savings which concentrate the whole procurement activities within a single principal location. It uses a procurement technique of utilizing a core purchasing cycle. This is the place they order from a group of normal merchants and utilize outsourcing procurement for their bigger and ad hoc purchases (Benton, 2013). With supplier optimization, the organization picks an ideal mix of suppliers who can give the best terms and prices. This procedure more often than not implies that the less capable suppliers who are not able to give a quality product or services at the prices and terms required are disregarded. This makes supplier optimization by far the most well-known of the different purchasing strategies (Benton, 2013).

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