PRICING CONSIDERATIONS AND STRATEGIES
Introduction
The business sector is ever growing. It creates the need for professionalism in the process to ensure a company overcomes its potential competitor in client satisfaction which is the main aim of all businesses while making profits (Shank and Lyberger 2014, p.51). Apart from product quality and customer treatment, the product price is one of the most significant blows to the customer, and it is capable of either sending of the customer or warmly welcoming them to ask more about the product. To ensure this, companies often change their product prices and market them in such a way that it outwits all its competitors for better sales. It is a healthy competition in the industry.
Pricing considerations and strategies.
Under the pricing strategies, lies a significant factor that dictates how the commodity prices are set. These are the policies that are used during the setting of product prices. The variable price policy indicates that the price of a commodity can vary but in certain conditions and times. Perhaps when some buyers who buy generously appear, the price is lowered for them to please them. The policy can also be attributed to the bargaining power of the buyer. The other policy is the non-variable policy that dictates a single price to the class of buyers. There are many types of buyers classified as distributors, whole sellers, and direct consumers, and each class will have its fixed price different from that of the other class. Single price policy dictates that all buyers in the same conditions face the same price tag without any class discrimination whatsoever (Ward and Woroch 2010, p.24). The strategy works well in building the goodwill with the direct consumer, which on the other side also affects high quantity customers who might feel lower prices could be necessary for them. In local retailers, for example, the price of a Kaspersky Antivirus was $20 in its cheapest plan. However, when a buyer bargained, the retailers could part with the antivirus package for $15. It is a clear indication of how the package price changed due to bargaining.
Point of origin
Another policy that dictates the pricing of a commodity is the point of origin. It is a geographic policy that directs lower prices at the factory region and high prices in other places far from the factory. It is made possible when, for example, the manufacturer sells the commodity at the factory price but offers no allowances for the transportation of the product to other places (Wang and Li 2012, p.910). Freight absorption policy is another measure in which the transportation cost is either partly or wholly inclusive of the price. It makes buyers bear the transportation cost indirectly. The price can vary according to the distance the commodity is transported, or the transportation cost can be averaged for all consumers regardless of their distance from the point of production. It means a buyer located near the production point will be penalized while one far off the factory will be subsidized. Discounts come as the most common pricing management policy that dictates a buyer to pay the price much less than the quoted selling price. Cuts come in several ways, including trade discount which aims to compensate the consumer from hiked prices by the intermediaries. The other is the quantity discount in which the price cut off depends on the amount the buyer opts to buy (Chatterjee 2009, p.175). For instance, Toyota is an automotive manufacturing company with significant factories in Japan. Toyota has most of its cars selling cheaply in Japan. However, once importing a vehicle to another location such as Canada or within Africa, the price shoots. In this regard, the buyer caters for the shipping cost of the car after purchasing it from Toyota. The price of a used Toyota Vellfire was $ 3,400. Its corresponding value, when bought to Mali, Africa, was $9,643. It tripled the car price since the manufacturer did not cater for the shipment.
Rebate
Rebate is another significant policy in managing the pricing strategy. It dictates a reduction of the quoted price to relief the consumer of painful factors such as late delivery of goods ordered, defective products delivered or goods damaged during the delivery process (Chiu, Choi and Tang 2011, p.87). Premiums are other policies that dictate how the price of a commodity varies. In this method, the paid value may be higher than quoted despite enjoying discounts (Dordick, Dan and Iwano 2011, p.589). It includes extra charges such as after sells services, warranty, and even assured durability. A good instance for both of these is the online shopping app Jumia. For a 16GB memory stick bought abroad and would take longer to deliver, they would barely charge $9 for it. However, if you bought the same memory stick from a local dealer who provides it immediately, they would charge you around $13. If you bought a color television from Sony Bravia and ordered that it be delivered to you, you are sure to be charged an extra $15 for the 32″ TV you had bought at a fair cost of $250.
Another policy is leader price policy in which a manufacturer’s change of the pricing is so influential that other manufacturers have to follow suit. The price leader, in this case, can be the most powerful in the industry to be that effective. Psychological pricing policy dictates that by creating a particular perception that the price is low, making them opt to purchase the product. For example, a price tag reading $199 can be friendly as compared to that reading $200 and the former will attract more buyers than the latter. An example of a leading organization in China is Huawei. In its vast and leading technology in the Chinese market, a price of Huawei Y9 smartphone is random $150-$200. When the prices change, there is a blow to the competitors in China, such as Xiaomi. After the change of Y9 from $200 to $150, Xiaomi responds by changing the price of its Redmi 5A from $220 to $170, to retain its customers.
Penetration price policy
The penetration price policy is useful when a new product needs to penetrate the market. The price is usually set low to attract buyers (Ward and Woroch, 2010, p.24). It is useful when the competition is stiff, or when the purchasing power is very high. The skimming price policy is also suitable for new and unique products, and it dictates a high introductory cost, then lowering it gradually as the competitors bring similar products in the market. More top purchase terms for high-cost products is another policy which dictates higher prices due to interest accrued in paying for more extended periods in installments. Another strategy is special event pricing. It directs that special events such as national holidays or religious eves and school reopening, the prices are fixed at a lower value to attract more customers. When Smadav first launched its antivirus, it was free. Even today it has a free version. After gaining market power, the antivirus gradually became expensive. Currently, the antivirus’ cheapest plan is $5 renewed annually. The strategy here was to penetrate the market which was already filled with competitor products such a Norton and Avast.
Price objectives
The price setting process begins at the setup phase of the manufacturing industry. It starts with setting price objectives. These are a set of aims an organization has set which include product survival in the market and product quality. The next step is estimating the product demand for price determination and how the demand curve will flow. The third step is looking at the prices of the already available products in the market set by the competitor. The pricing strategy is then selected depending on the product quality and demand. The last step is selecting the pricing policy which will be dictating how the pricing methods and approaches will be governed (Ingenbleek and Van der Lans 2013, p.33).
Breakeven analysis
Avoidable cost is a cost that will be evaded if the operator performs a particular activity while the incremental cost is what a business operator experiences due to production and sale of additional product units and are an extra expense. The breakeven analysis could let the client sell certain products weekly, monthly, or annually. I would advise that the client does not invest in breakeven analysis, but instead make the products available all through. It is because it can be mistakenly taken for the payback period and greatly depends on the averaging the cost-per-unit variable.
Commodity life cycles
Among the challenges faced when introducing a new or updated pricing strategy, is the rate of market growth. Some products may be affected by the pricing policies such that they don’t experience rapid market growth. The second challenge is to price over the life of a commodity. Different products have different life cycles, and it is hard to predict through the life cycle; thus, the pricing problem has to be varied as per the stage the product is. Another challenge is post-skimming strategy since after skimming the price the decision will have to change over time due to for example saturation of the market or reduction of the market. Mixed strategies are another challenge in case the product manufacturer chooses a plan between two extreme strategies in that the result is tying the buyer between two equal points whether to buy or not (Shank and Lyberger 2014, p.51).
Competition
Possible competitors apply pricing strategies such as skimming and psychological pricing, discounts, and rebates. The best solution to curb the plan to include unique features in the products we want to place in the competition, and applying relatively low prices while adjusting marketing and packaging costs. It is done, especially when we set our price almost the same as that of the competitor. To best manage the current trends in the market is to apply the most integrated workforce management system the social force is the most crucial resource in a company and is responsible for product quality, and modern production(Goldsmith, Flynn and Kim 2010, p.328). Just like the toothpaste supplier Sunda International penetrated the market in Africa with a tube toothpaste labeled, T-Guard whose cost is a meager $0.4 while its primary competitor Colgate sells the same amount of toothpaste at $2. The strategy used by Sunda International has enabled it to penetrate the toothpaste in the market quite quickly.
Conclusion
Price sensitivity of a consumer dramatically affects a company’s revenue from the products and services it renders. If a consumer is shut down by the drastic price change, then it is a significant blow to the company. Thus a company should accurately measure the price sensitivity of its consumers. When pricing, manufacturers have to follow ethical guidelines which require them to earn profit minus defrauding their consumers. Implications of violating these ethical guidelines of operation can result in revoking of the operational license.