Setting Prices for Products and Services - Essay Example

? PRICING DECISIONS In the context of marketing, pricing decisions are critical conceptual tools used by an organization in responding to its marketing objectives. In actual business environment, setting price for products and services proves as one of the most agonizing undertaking for marketing personnel. The agony is attributed to the fact that there are numerous variables and factors to be considered before arriving at a pricing decision. The underlying five articles seek to substantiate the efficacy of certain practical models used in actual context as tools for making pricing decisions. All the articles provide a framework through which managers and stakeholders within the marketing environment can understand pricing dynamics. In order to enhance objectivity of results obtained, these articles employ the use of scientific research processes in acquiring information. Therefore, findings at the end of each article reflects experimental results on pricing policies, efficiency of pricing models and the relationship between pricing decisions and productivity. Introduction In actual marketing context, product and service pricing plays a significant role in influencing attitude of current and potential consumers. In a competitive environment, consumers may avoid purchasing goods from a given manufacturer because of higher prices compared to other producers in the industry. On the contrary, Kunnumkal and Topaloglu (2010) say that setting product and service prices depend on the production cost as well as profitability objectives of an organization. In this case, any producer has to reach a compromise between retaining consumers and pursuing its goals of profit maximization. According to Hoseason (2003), pricing models and policies contained within these articles proposes empirical mechanisms through which producers can achieve such an essential compromise. One article holds the opinion that pricing decisions should be in line with observed or expected customer behavior. In this case, all decisions regarding product price should take into consideration implications resulting from implementing adopted policies. Contrarily, other articles insist on the role of production cost in determining market price of products and services. Such a model seeks to establish an economic balance between production efficiency and pricing policies. Importance of the Study With respect to significance of information contained within the articles, one should acknowledge the fact that empirical pricing models are instrumental in responding to real world marketing problems. In practical context, the economic forces of demand and supply may not prove realistic and responsive in explaining price elasticity. According to Mandy (2009), prices may be affected by other variables like distribution mechanisms, marketing channels and retail strategies. In this case, manufacturers need to appreciate resourcefulness of experimental approaches in making pricing decisions. Low price on products and services may induce customers’ propensity to make buy decisions. However, setting such low prices should be in synchronization with other determinant factors like cost of manufacturing and expected revenue of an organization. According to Leo, Chris and Verma (2012), certain market segments, especially those involved in tangible products are known to being more price sensitive compared to service delivery markets. In such cases, pricing decisions should be a function of price sensitivity variables and expected revenue. This explains why pricing policies are formulated after thorough consideration to aspects of marginal costs and profits. Article 1 - Retailer Dynamic Pricing and Ordering Decisions: Category Management versus Brand-by-Brand Approaches, Kopalle et al, 2010. According to Kopalle, Hall and Krishna (2010), the aim of this article is to determine the effects of category management in influencing ordering decisions and sustaining profitability at a given pricing levels. It seeks to develop an empirical comparison between category management and brand management in terms of pricing implications. It adopts a quantitative methodology in acquiring statistical data between the variables of brand management and category management. Based on the nature of data and information available within the real world marketing environment, the article employed both experimental and theoretical designs in data collection exercises. According to Kopalle et al (2010), category management is efficient in enhancing profitability as compared to brand management. In category management, implications of pricing regulations for one product group do not affect other categories. However, implications on pricing and ordering decisions in brand management affect the entire business. Article 2 – Pricing: Making Profitable Decisions, Hoseason, 2003. The purpose of this article is to substantiate the role of pricing theories in facilitating development of sound and effective pricing policies. The author acknowledges that theoretical constructs can be instrumental in enabling managers to make profitable pricing decisions. According to Hoseason (2003), data collection process employed a qualitative methodology followed by a descriptive research design. This method proves suitable in establishing the relationship between theory of profitability and pricing policies adopted within a given organization. With respect to findings, it became undeniable that marketing managers are responsible for ensuring profit maximization in sales activities. Therefore, pricing decisions takes into consideration aspects of desired revenue and theoretical pricing models as opposed to influence from economic forces of supply and demand. Article 3 – Pricing inputs to Induce Efficient Make-or-Buy Decisions, Mandy, 2009. This article aims at highlighting the role of input costs in determining prices of resultant products and services. Mandy (2009) insinuates that inputs will determine marginal cost of production, and thus influences decisions regarding to expected profits of products and services. Research involves employment of quantitative methodology in acquisition of numerical data. Data obtained ranged from price of production inputs like materials and labor costs to cost of finished products in the market. These data were used in establishing a link between the cost of purchasing production inputs and that of setting product prices. According to Mandy (2009), the economics of inputs are invariable restrictive in influencing pricing decisions. In simple terms, it means that high input costs will result in a corresponding high product pricing, and vice versa. Article 4 – A Stochastic Approximation Algorithm for making Pricing Decisions in Network Revenue Management Problems, Kunnumkal & Topaloglu, 2010. The aim of this quantitative research exercise is to determine the extent to which pricing decisions are inclined towards revenue objectives of a producer. In order to establish the relationship between these two variables, the researchers chose to utilize a computational experiment approach using approximation algorithms. The methodology was quantitative because the entire data collection and analysis processes involved simulated computation of statistical figures. According to Kunnumkal and Topaloglu (2010), results indicate presence of a significant positive relationship between revenue management and pricing decisions. This means that decision making models shows a convergence between pricing policies and revenue benchmarks adopted by an organization. Article 5 – Using revealed and stated preference customer choice models for making pricing decisions in services: An illustration from the hospitality industry, Leo, et al, 2012. Unlike the other product-related articles, Leo et al focus their study on the service delivery industry. This article aims at quantifying the relationship between pricing policies and customer attitudes within a hospitality industry. It seeks to appraise the role of using discrete price decision models in influencing consumer attitudes and responding to revenue objectives of an organization. Research within this article employed the use of empirical data from quantitative methods and designs. According to Leo, et al (2012), findings suggest that analytical decision models influence consumer attitudes to a significant extent. Leo et al (2012) says both primary and secondary data from preference customers suggest that managerial implications of pricing results from discrete models used in making underlying decisions. Summary In conclusion, I am of the opinion that pricing decisions remains one of the most agonizing and tricky responsibility for marketing executives. My opinion is attributed to the fact that numerous factors must be brought into harmonious relationship before setting product or service prices. Failure to follow efficient decision models will either compromise on consumers’ attitude towards an organization’s products, or undermine the profit objectives of the same company. Therefore, pricing decisions are only arrived at after thorough consideration to all relevant variables within a given market segment. Reference List Hoseason, J. (2003). Pricing: Making Profitable Decisions. Journal of Revenue and Pricing Management 2(2), 175-177. Kopalle, P. K., Hall, J. M. & Krishna, A. (2010). Retailer Dynamic Pricing and Ordering Decisions: Category Management versus Brand-by-Brand Approaches. Journal of Retailing 86(2), 172-183. Kunnumkal, S. & Topaloglu, H. (2010). A Stochastic Approximation Algorithm for making Pricing Decisions in Network Revenue Management Problems. Journal of Revenue and Pricing Management 9(5), 419-442. Leo, M., Chris, A. K. & Verma, R. (2012). Using revealed and stated preference customer choice models for making pricing decisions in services: An illustration from the hospitality industry. Journal of Revenue and Pricing Management 11(2), 160-174. Mandy, D. M. (2009). Pricing inputs to Induce Efficient Make-or-Buy Decisions. Journal of Regulatory Economics 36(1), 29-43. Read More