Pricing - Essay Example

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The intention of this study is pricing as the process of setting what an organisation will obtain in exchange for its products or services. Pricing plays the key role in determining the profitability and sustainability of a business firm. …
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Download file to see previous pages Center of discussion in this paper is pricing that can be approached at three distinct levels such as industry level, market level, and transaction level. Industry level pricing process considers overall economics of the industry including changes in customer needs and supplier prices. Zuponcic states that Market level pricing takes into account market trends and competitors’ strategies; whereas, transaction level pricing specifically focuses on the discounts management. Modern marketers practice a range of pricing strategies mainly including cost plus pricing, skimming pricing, market oriented pricing, penetration pricing, premium pricing, price leadership, target pricing, absorption pricing, and value based pricing. A set of economic factors is to be considered before recommending a pricing strategy for a particular product since pricing is the most effective profit lever. As Sloman points out, it is necessary to evaluate market demand and price elasticity of the product. For instance, if there is high market demand for a product, the marketer can fix a relatively higher price whereas he will be forced to lower product prices when market demand declines. Some products including jewelleries and automobiles are very sensitive to price; and hence, even a small increase in price will lead to a noticeable decline in their market demand. As Clausen indicates, economic theories do not encourage the setting of higher prices for such price sensitive products. In addition, production costs and expected profit margin have to be analyzed while choosing a pricing strategy....
In addition, production costs and expected profit margin have to be analyzed while choosing a pricing strategy (ibid). When a product’s cost of production is high, firms generally charge higher prices in order to ensure adequate return on the huge investments. In the view of Senior (1852, p. 102), organizations need to consider huge profit margins if the cost production is high and fix a low profit margin if production costs incurred are near to the ground. Shaw (2001, pp.58-59) points out that market structure also plays a crucial role in ensuring successful pricing since market demand is the key driver behind product movement. To illustrate, a skimming pricing policy would probably fail to attract customers in a market where competition is intense, because a set of other product choices are available to customers. Therefore, it is better to adopt a cost plus pricing policy or penetration pricing policy while operating in a highly competitive market environment. Similarly, price discrimination strategy would be advisable in a market which contains diverse population. This strategy seems to be potential for mobile phone industry, particularly to Aslan. According to George, Joll, and Lynk (1992, pp.181-185), in an oligopolistic market environment, a small number of sellers dominate the market; and hence economic theories advise firms to compete in such market segments with relatively low prices and high production. If a marketer increases his product prices in an oligopolistic market environment, customers will certainly switch their demand to other sellers who market their products more affordably. Marketers must give specific focus on the pricing of simple configurable products. Economic approaches direct that price ...Download file to see next pagesRead More
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