Product Pricing Strategy - Essay Example

Hence, it is very important that the organization should know all their costs in developing the products and in their marketing & inventory holding. Once the internal thresholds are known there are multiple additional factors that drive pricing decisions from market perspective. Monroe and Bitta (1978. pp414) presented a consolidated view of multiple models of product pricing decision classified as - new product models, product line models, price change models and price structure models. The indicated their choice for market comparisons based pricing - like related products, volumes in demands, number of discounted units, price differential with competition, etc.

These factors have been empirically accepted by product strategists in pricing their products. However, the author agrees with a new theory presented more recently in 2000 by Thakur and Nair et al. (2000. pp90-92) on product pricing stating that products should be priced based on consumer preferences and not by the actual prices or consumer budgets. They reiterated that the products should be offered with the characteristics preferred by customers kept above thresholds and priced based on maximum welfare model such that consumers having wide variations of income can afford the product.

This is particularly prevalent in automobile and consumer durables markets. Armstrong (1996. pp51-52) argued that prices should be kept variable as per customer preferences such that premium customers buying larger quantities are offered lesser prices and standard customers buying lesser quantities are offered more prices. However, it is observed that when customer preferences are combined with inventory levels, companies tend to increase prices irrespective of whether the customers are premium or standard.

There are some concerns in such models that the author presents in the next section.Ethical considerations and other concerns in product pricingEthical considerations are specifically required to be considered in monopolistic product pricing when dynamic pricing is carried out with fluctuating demands combined with inventory levels. Elmaghraby and Keskinocak (2003. pp1288-1289) discussed that, empirically, dynamic pricing has been one of the best practices in products and services due to change in customer demands (like urgent deliveries needed) or change in inventory levels (less inventory of products in more demand).

This strategy is largely prevalent in service industries - like Airlines, Hotels, Transportation, etc. From the ethical perspective, the author hereby argues that dynamic pricing should not be carried out for essential commodities like food, clothes, medicines, healthcare, hospital beds, etc. Some companies increase prices substantially as soon as they witness customer orders with urgency. There are theories in operations research to maximize profits by taking urgent supply orders from customers at premium prices (example, Levin & Ma. 2004. pp217).

While it may be a good practice to service customers with urgent