Implementing Pricing Strategies - Assignment Example

Implementing Pricing Strategies Question 1 Contribution is a reward or compensation to a common fund or compilation. It can be referred as the payment which an individual offers for any particular purpose. Besides, the entire contributed amount of an individual is calculated based on price and cost. Moreover, contribution varies from one individual to another. In addition, contribution means a part of payment which is donated on the basis of psychological preferences as well, considering it to be a part of fixed components of cost and price. Notably, fixed costs and prices are industry operating costs that are autonomous from the level of products or services manufactured by the business (Avis, 2009). Moreover, fixed costs and prices are those which are essential for running any business. Hence, these contributions are mandatory for any individual. If an individual is operating any business enterprise, the remunerations, rent and raw material cost among others are considered as overhead or fixed costs. Besides, the employees and general public also gives rise to certain fixed costs and prices such as insurance cost, health cost and medical cost among others. Therefore, fixed costs and prices can be referred to as those expenses which do not change with any alterations in the function of the business. Thus, it can be affirmed that fixed cost and prices relates to those components which are essential for measuring contribution (Avis, 2009). Apart from these, fixed cost and prices charged are also necessary in case of marketing. It facilitates in predicting the earnings of a business generated by varied modifications in ‘unit sales’ as well as the impact of anticipated promotions. Hence, both cost and price play a significant role in contribution. In addition, these uncertain variables might prove indecisive due to changing needs and demands of customers. When the demand of a particular product or service is high, the amount of contribution might also be increased in order to attract the premium group of customers. It would enhance the market share and profitability of an organization as well as improve the brand identity. Similarly the contribution percentage or investment should be lowered at the saturation stage of a product or service to avoid incurring huge loss. Thus, it can be avowed that determination of uncertain variables such as cost and price is entirely based on the demand of product or service (Bloom, Bond & Reenen, 2007). Hence, these tentative components should not be considered as fixed, because it entirely depends on the demand fluctuations in the market with high possibility of changing values. Question 2 Pricing strategy is referred as the idea of implementing an optimum price, based on the features of the particular product or service. The prime objective behind the notion of shaping pricing strategy is to capitalize profit thereby enhancing the total sales of specific product or services. There are varied types of prices such as ‘cost-plus-pricing’, ‘skimming pricing’, ‘penetration pricing’, ‘value-based pricing’ and ‘target pricing’ among others. Moreover, the pricing strategies are mainly implemented based on the competition of product or services in the market. In addition, price of products and/or services help to determine the sustainability and consistency of a brand in the market among others. Thus, it can be affirmed that pricing policy is one of the significant decisions of product or service of an organization. However, at times, determination of pricing strategies of products and/or services also creates conflict among the employees of an organization thereby hindering their dedication towards work. Hence, pricing strategies also hamper enthusiasm and employee morale which might prove detrimental for an organization (Avis, 2009). Pricing strategy is a tool which is utilized in order to enhance the profit of an organization augmenting the demand of products and/or services in the market. Moreover, at times, experienced managers also had to change the pricing strategies specified for a particular product or service according to the situational changes in order to retain the profit margin. This might create conflict among the managers in organizational hierarchy resulting in de-motivation and dissatisfaction. This thwarts the working culture declining the corporate image of an organization in the market to an extent. Moreover, due to conflict among the co-members, demoralization increases resulting in relinquishment of the job as well (Wiley, n.d.). Thus, it can be avowed that determination of prices of product or service is a strategic decision which needs high concentration as it might hamper the performance. Question 3 Pricing decision is one of the significant aspects for any organization as well as for a product or service to be accepted by the market. Pricing is determined on the basis of demand of product or service in the market. Apart from this, the demand can be determined through market research of products and/or services with extensive investigation and examination of customers. Thus, market research acts as a technique which helps to analyze the position and uniqueness of products among others in the market. Hence, marketing team of an organization is mainly responsible for performing the research in order to examine the weakness of product as compared to other competiting manufactured goods. Along with this, marketing department and the sales division of an organization is also responsible for exploring the limitations of the products and/or services. This is because a sales person of an organization directly interprets with a customer which helps to determine the underlining faults. These feedbacks of customers are then shared along with the marketing department, which facilitates in improvement of the features of products and/or services along with price. Thus, it can be asserted that both marketing and sales department is responsible in determining the price of a product or service. Hence, prices of products or services should be determined only through appropriate examination of comments of targeted customers as they are the key aspects of any business (Schwartz, 2006). Question 4 Incremental cost is also known as marginal cost and is referred to as the alterations in the total cost of products and/or services due to varied optional courses of activities. The incremental cost might augment or diminish due to excess production of a single or more units of outputs. Thus, incremental cost might vary with manufacturing procedure and can be denoted as a variable cost. Moreover, amplification of incremental cost takes place mainly at times of ‘breakeven point’, when the estimated turnover is exactly equivalent to predicted total cost. Incremental or marginal cost can also be referred to as an inconsistent factor which increases the total cost of a particular product or service. Besides, marginal cost incurrence might prove beneficial at times and detrimental as well (Productivity portal, n.d.). Marginal or incremental cost might include labor and raw material cost, management overhead and selling expenditures among others. Thus, in order to reduce incremental cost, appropriate allotment of the resources is essential. This is because incorrect choice of suppliers and raw materials might incur huge loss which would enhance variable cost of the production hampering the total cost of product. Therefore, it can be stated that incremental or marginal cost plays a significant role while evaluating pricing decisions of any products and/or services. Hence, proper evaluation of incremental cost is essential as it helps to reduce the unnecessary costs incurred by an organization such as outsourcing decisions (Heshmat, 1993). Moreover, when marginal cost or incremental cost is equivalent to marginal revenue, profit enhances thereby increasing demand in the market. As profit maximization is the prime motto of any organization, incremental cost is extensively concerned while determining the pricing strategies. Hence, evaluation of total cost becomes rather difficult for the management of an organization as it is variable in nature. Thus, incremental cost is only considered while evaluating pricing decisions towards introduction of any new products or services in the market as it helps to enhance the sustainability and brand image among others. References Avis, J. (2009). P2 - Performance management, managerial level. United Kingdom: Butterworth-Heinemann. Bloom. N, Bond. S. & Reenen, J. V. (2007). Uncertainty and investment dynamics. Retrieved from http://www.stanford.edu/~nbloom/roes_7923.pdf Heshmat, S. (1993). Framework for market-based hospital pricing decisions. United Kingdom: Routledge. Productivity Portal, (n.d). Marginal & incremental costs. Retrieved from http://www.productivity.in/knowledgebase/Cost%20Reduction/Marginal%20and%20Incremental%20Costs.pdf Schwartz, M. (2006). Fundamentals of sales management for the newly appointed sales manager. United States: Amacom Div American Mgmt Assn. Wiley, (n.d.). Introduction to operations management. Retrieved from http://media.wiley.com/product_data/excerpt/48/04713472/0471347248-3.pdf Read More