Login with Facebook

Key Factors That Affect Pricing Decisions

There was a time when products were sold at a price desired by the manufacturer. The customer bought without delay, and the seller was satisfied. In this "ecosystem," the price was a mere monetary expression of the good, nothing more. Today selling products at a price established only based on costs is an impracticable strategy.

In a complex and fragmented economic world like the one we live in, the power of a company to determine the price of its products has decreased significantly. The price represents, in fact, the expression of a value, which goes beyond the simple monetary quantification and is determined by the satisfaction of one or more needs through the monetary sacrifice. Furthermore, quantifying the price of a good or service is a Marketing choice, a choice tied to profitability constraints, but also to the general economic context and the market context in which it operates. The price decision also reflects a Strategic Plan in which objectives, activities, and choices dictated by product positioning, distribution, and communication strategies are put in place.

The aspects that make the autonomy in choosing the price rather limited pertain to the micro and macroeconomic context in which the company is located. Here are some factors to consider:

- the level of demand for a given good or service

- the decrease in the life cycle of products

- the proliferation of brands and similar products and the consequent fragmentation of the offer

- technological innovation continues

- the strategies of distributors

- the increase in the cost of raw materials

- inflation and price controls

- rigid wages and shrinking purchasing power

- Legal and tax regulations.

From this, we understand the importance and complexity of launching a pricing policy appropriate to the business objectives. In light of the above, let us explain how to determine the selling price?

According to the objectives, you will have to adjust the pricing strategy based on three factors: the costs, the application, the competition.

The costs, the starting point. We said it at the beginning; it is no longer sufficient to establish the sale price based on financial criteria.

The costs only represent the starting point; with them, it is possible to determine the financial implications related to the production of the products.

The method most used in the past, and which is perhaps still used today, consists of quantifying the direct costs that are those necessary to produce the product, the fixed costs. For instance, wages and expenses are related to marketing and communication activities, and the general costs of the company for production. In addition, a profit margin is included in the quantification of the price, sufficient to remunerate the capital invested.

It is a simple and easy to apply method. However, it does have one drawback; it does not take into account the sensitivity of demand concerning price. The misconception is that with this method, it is thought that the level of product demand from customers can be determined automatically. Unfortunately, for various reasons, this is not the case to obtain a sufficient product demand; other aspects must be considered.

Considering costs as the only factor takes into account the internal values ​​of the company but does not, for example, consider the reaction of the target to the proposed price. Furthermore, a purely quantitative indicator is revealed, excluding other qualitative aspects.

The question, the market-oriented price

In a market economy like ours, the price is not only determined by the company. But, it must also take into consideration potential customers, who ultimately choose the products that will be most sold. The market orientation suggests adopting a pricing policy that can satisfy the needs of those who will buy the goods.

In this case, the corporate profits linked to the product will be determined based on the price deemed acceptable by the market. The focus on which to pay attention will be the customer's sensitivity to the price. Price sensitivity represents the reaction of the demand concerning a change in price. Determining whether demand is not or is (and to what extent) sensitive to the price makes it possible to understand the scope of maneuver within which to change its level while keeping profits almost unchanged.

This concept in economics is indicated through the concept of elasticity. However, estimating the elasticity of demand is not enough to correctly determine the sale price. In fact, other aspects influence the customer's mind and purchase decision. For instance, the image he has of the manufacturing brand and the way the product is perceived, factors that contribute to determining the so-called perceived. 

Value of the product by the customer

Furthermore, in most cases, a single selling price is not practiced but is modified according to different market situations. The reason why a company practices these flexible prices lies in the different price sensitivity between groups of customers, in the variation of costs or in promotional objectives.

Common examples of flexible pricing are:

- the offer of products based on seasonality

- promotion prices

- discounts and discounts on the price

- sale through e-commerce

- Price discrimination practiced by some service companies such as airlines.

Competition influences much the price choices.

The pricing policy cannot go beyond an analysis of competitors' moves.

Understanding the pricing strategies of competitors is useful in defining the company's autonomy over the choice of price.

This degree of autonomy is influenced by two variables, the intensity of competition and the aforementioned perceived value of the product by the customer. If the number of competitors is low and the perceived high value, the company will have a high degree of autonomy. Conversely, a high number of competitors with a low perceived product value will limit the autonomy in the price decision.

The most frequent market situation in the economic situation is the intermediate one, in which the company has a degree of autonomy in the choice limited by an average market price that will act as a common reference. Before making any decision as to the price to be charged, the average price and possible reactions of competitors should be analyzed in advance. We must also pay attention to the choices of the market leader. 

Other factors

We have presented the three main factors that influence the company's determination of the selling price of products. The argument is complex and does not end with what has been said. Other situations influence the process of determining the most suitable price to simultaneously ensure profitability, customer satisfaction, and product placement in a competitive context. Here they are below.

1. The product is in the launch phase

If the product in question is new, it will probably be without competitors and will satisfy a need originally. In this case, it is possible to make two choices, offer a high price by turning to those who are willing to pay this price. 

2. The range of products sold

If, on the other hand, the products offered are complementary or substitute, the pricing policy can influence the various market shares. Therefore, a realistic goal could be to maximize the profits of the entire range and not of the individual products, avoiding the various market shares from attacking each other. The feasible solutions are to offer the products at a single price but less than the sum of the individuals; sell the same product to different price ranges and, therefore, to different groups of customers. Offer the basic product at a low price and the accessory products at a higher price, for example, for razors and razor blades.

3. Export to foreign markets

In this delicate situation, some specific aspects have to be addressed. First of all, the transfer cost applied to the export division. It is necessary to make the export profitable for both the local and the exporting department. In addition, the quantification of export costs i.e., defining them precisely reduces the price of the product considerably and improves competitiveness in the country in which it is exported. In the case of export within an EU member country that has the euro as its currency, it will be necessary to check the difference in the average price between the markets takes into consideration. If the currency is the same, the legal differences, tax, distribution, and competition between countries have not allowed the alignment of prices between them.

It is clear that the decision on the selling price of products is not a choice that should be taken lightly. Price is a strategic component, and as such, it must be chosen by carefully examining all possible variables and conjectures. The chosen price can, in fact, sanction the success (or failure) of a company product.

Most of the time, the competitive pricing strategy is determined by the same dynamic that the industry imposes. Retailers have a vast catalog of products, but much of this coincides with that of their competitors, which is why competition is fierce, and margins are largely adjusted. Therefore, this method of determining pricesPricing Decisions, which starts from an idea as simple as that of observing and conducting an analysis of competition. It requires that prices be monitored in real-time to keep the offer competitive.


Comments




Send Comment

Need a custom
essay?

We will write it for you.
Order now

Free Essay Examples

Free essays:

Analysis of Consumption and Investment
Analysis of Business Cycles
Analysis of Fiscal and Monetary Policies
An Overview Of Economic Studies
Biosensors for cancer diagnosis
Business Analysis: Pricing strategies and Demand Curve
Broadcasting: How to Be Good In Front of the Camera
Bioconjugates for the Drugs Delivery
Cells of Immune system
Challenges that IT Managers are facing
Cochlear implant: what it is and how it works
Current challenges to the health of women
Doppler ultrasound or simply eco Doppler
DNA extraction
Dynamic Systems Modeling with Machine Learning
Digital Imaging: What Is It?
Economy analysis: Business Cycle and Economic Trends
Exchange rate and foreign currency risk
Economic Factors Affecting Decision Making In A Business
Economy Analysis: Inflation, Unemployment And Policies
Factors Influencing Interest and Exchange Rates
Fiscal and Monetary Policies in Response to 2008/2009
Fermentation: how it works and what it is used for
Financial Markets and Functions
Genetic regulation networks: modeling in biology
How does the economics of war affect society?
How can immigrants blend in the American society?
How to make your business survive at economic crisis
Importance of corporate sustainability
Interaction of Consumer and Firm Choices in Markets
Introduction to Microeconomics
Introduction of Microfabrication techniques
Journalism: What is News?
Journalism: Broadcast media and Television Presenters
Journalism: Sources of News
Journalism and Law
Key Determinants of National Income
Key Factors That Affect Pricing Decisions
Kinetic models in biology and Related fields
Know about the different forms of traditional African dances
Latest technology trends
Latest dance trends
Methods of labeling of nucleic acid that enable their detection
Macroeconomics: International Economic Issues
Neuromuscular disorders
National Economies, Fluctuation, and Responses to Fluctuations
Neurotransmitters: what they are and different types
Nanomedicines to target tumors
Overcoming Hiring Challenges for Nonprofit Organization
Principles of Microeconomics - Producer Theory
Principles of Microeconomics - Consumer Theory
Principles of Economics
Role of media in wartime.
Role of technology in the modern business environment
Role of Homeostasis in Human Physiology
Role of a digital artist
Skills in Journalism: Effective Interview
Systems biology - An understanding the functioning of biological systems
Self-assembly for biological systems
School of American Ballet
Types of corporate responsibility
The Role of Government Policy in Improving Economic Outcomes
Types of bioreactors and their applications
Technological perspectives and reflections of neural engineering
Understanding Perfect and Imperfect Competition
Ultrasound: physical principles and image formation
Understanding social entrepreneurship
Understand the importance of investigative journalism
Various theoretical perspectives of sociology
Virtual reality, what it is and how it works
What is MBA with Concentrations
What are the Causes of financial instability?
4 Facts about Origin of Mathematics!
5 techniques to create an animation
10 strategies to maximize corporate profits
13 Best colleges for political science in the world
6 Medical Technologies that revolutionized the healthcare in 2020
All you need to know about the ACA Code of ethics
Architecture and Democracy: An Introduction
Architecture and Democracy: Democratic Values
Architecture and Democracy: Democratic Procedures
All You Need to Know About a Synthesis Essay
An essential guide to understanding Film Theory
Application of Artificial Intelligence in Cyber Security
Applications of electrical engineering
Augmented reality: what it is, how it works, examples
Advantages And Disadvantages Of Social Networking
All you need to know about Cryptography
Applications of astrophysical science
All you need to know about architecture engineering
Applications of geological engineering
Artificial intelligence and medicine: an increasingly close relationship
An insight into Computational Biology
ACA code of conduct
A Rose for Emily
Applications of Mathematics in daily life
Architecture mistakes to avoid
All you need to know about Toxicology
All you need to know about Holistic Medicine
All you need to know about linguistics
An introduction to Linguistics and its subfields
All you need to know about Anxiety disorder
All you need to know about Drones
A Brief Insight into Political Science
Assumptions related to feminism
All you need to know about Byzantine emperors
All you need to know about labour economics
An insight into xenobots -the first-ever robots
An ultimate guide about Biomaterials
A Comprehensive Introduction to the Mona Lisa
Analysis methods of Transport through biological membranes
An ultimate guide about biochemical reactions
Analysis of brain signals
Artificial Gene Synthesis
Application to synthetic biology of CAD methods
All you need to know about metabolic pathways
Applications of BIOMEMS
All you need to know about the epidemiology
Asian vs. western leadership styles
All you need to know about Smart prosthesis
Analysis of Economy: Output of Goods and Services (GNP), and GDP on Economic success
A Guide to Pricing Strategies
An Overview Of Economic Studies
Analysis of Fiscal and Monetary Policies
Analysis of Business Cycles
Analysis of Consumption and Investment
How to Write a Personal Essay
Housing Needs in America
How to Write a Description Essay
How to Create an Excellent Scholarship Essay?
How to write a cause and effect essay
How to Hire the Best Essay Writing Service Provider?
How to Write a College Application Essay?
How to get the most out of your English lectures
How to write Expository Essay
How to succeed in your psychology class?
How to Write an Academic Essay in the Shortest Time?
History of Journalism
How Different Sectors are Using Artificial intelligence (AI)
How to write an informative essay
How to deliver persuasive essays?
How to Give a Convincing Presentation
How to write an essay on leadership?
Historical Art Still Around Today
Humanoid robot: what it is, how it works and price
History of Chemistry
Healthcare Advanced Computer Power: Robotics, Medical Imaging, and More
Healthcare AI: Game Changers for Medical Decision-Making and Remote Patient Monitoring
How to understand different types of English
How to Cope with Chronic Pain
How African American choreographers and dancers have influenced American dance
How mobile robot can do in logistics or in production
How To Become a Successful Entrepreneur
History of the Philosophy of Feminism
How is the climate changing?
How to Track Your Content Marketing ROI
How to Gun control In the USA?
Historical and contemporary role of labour in the modern world
How breast cancers are classified?
How the cells of our body communicate?
How the Lymphatic System Works?
How Digestive System Works
How to complete your capstone projects effectively?
How to write a research project
Healthcare technologies that help patients with better self-management
How to choose the topic of the senior capstone project
How to make your business survive at economic crisis
How can immigrants blend in the American society?
How does the economics of war affect society?
The Looming Energy Crisis in America
Top benefits of performance-based engineering
The More Languages You Know, The More Times You Are a Man
Things to consider while writing an Argumentative Essay
Top Ways to Improve Your Academic Writing Skills
Tips to Excel in Creative Writing
The origins of films in the early 19th century
Top career options in Architecture
The Elevator Pitch
Top finance trends 2020
The basic Structure and functionality of robots
The Way to Success
The election system of the President in the United States of America
Two-party System in United States of America
Top trends in urban design
The history and theory of African American filmmaking
Top benefits of creative writing
Tinnitus Guide: Common Symptoms and Treatment Options
The language of dance
The digital image processing management
Top famous politicians of the World
Top methods of political science!
The history of the feminist movement
The blood flow in cardiovascular system - Biofluid Mechanics
The best of Leonardo Da Vinci
The Structure and Function of Macromolecules
The structure of cell: a research on the bricks of the human body!
Tissue and organ construction: Adhesion and recognition between cells
The kinetics of the transformation processes
The Modeling of Biological Systems
Tips for writing a great thesis statement
The Defense mechanisms against infections
The impact of the technological innovations in medicine
Top journalism trends to know about
The relation between mass media & politics
Theranostics: Diagnosis and Care through Nanoparticles
The practical Applications of X-rays
The applications of Ultrasound in medicine
Transfer mechanisms of genetic information in Bacteria
The regulation of cellular metabolism in the diagnosis
The Principles of MRI Contrast agents
The technical basis of optical coherence imaging
The New Media: Emerging Trends
The Structure of Interest Rates and the Yield Curve
Technological perspectives and reflections of neural engineering
Types of bioreactors and their applications
The Role of Government Policy in Improving Economic Outcomes
Types of corporate responsibility
What is a Definition Essay?
What are diagnostic essays?
What is the relation between art structural engineering?
What is a Narrative Essay
What are robotics and intelligence systems?
What are the benefits of studying health sciences?
What is artificial intelligence and why it matters?
What is comparative Literature?
Why study neuroscience
What is Wi-Fi and how does it works
What is French history famous for?
What are Humanistic Studies?
What is covered in Biophysics?
What is modern journalism?
What is Virtualization? Benefits & Applications
What are modern public relations?
What is plasma physics?
What is teacher preparation?
What is rapid prototyping for 3D printing?
What is contemporary European Politics?
Why should you learn American Ballet?
What is engineering physics?
What is the purpose of African American Literature?
Ways to learn the Rhythm
What is digital art used for?
What are Enzymes and how do they work
Who is the father of political science?
Why Study Political Science - Job?
What is the Philosophy of Feminism?
What is a quantum computer?
Ways B2B Startups Streamline Their Conversion Strategies
Why do biomedical signals need processing?
What are the long term effects of climate change?
Why study labour relations
What is Holoprosencephaly?
What is antisocial disorder?
What are the important principles of evolution?
What is the cytoplasm and its function?
What is biopolymers?
What Makes a Good Leader
Women empowerment in modern generation
What is the history of political thought?
What is Gene recombination
What is synthetic biology
What is business cost analysis?
What is Inflation
What are the consequences of unemployment?
What is lithotripsy and its types?
What is transition elastography?
What is the purpose of deep brain stimulation?
What is a Brain-Computer Interface (BCI)
What is neuroethics?
What is Market and Supply and Demand
What is optogenetics?
What are the techniques to record brain activity?
What happens if the interest rate increases?
What is immunotherapy?
What is the economic role of the financial market?
What are the factors behind illegal immigration?
What is the lymphocyte activation?
What is financial market and its types?
What is the structure of financial markets?
What are the methods of measuring business performance?
What is the Credit market?
What is business ethics and code of ethics
What are the Causes of financial instability?
What is MBA with Concentrations