Economics - Pricing Methods

Designing an appropriate pricing strategy is always a challenging task for most corporations, because price is a determinative factor of operating profits. Meanwhile, price can affect customer perceptions and product development. According to the basic economic theory, pricing policy should reflect the product’s costs and the relationship between supply and demand. In addition to the fundamental framework, price settle mechanism should take into consideration the underlying industry environment. For example, pricing in manufacturing is heavily cost-based with the certainty that the costs are fully covered. And conversely, in some particular sectors, there are downsides when price setting relies solely on the variable costs because of the high fixed cost. Based on this judgment, product providers should carry different pricing mechanism under different market conditions. Accordingly, pricing evolves from a purely academic topic related to the economic theories to a profits-maximising instrument involved with marketing practices. All these issues make the price setting problem more

Price is all around us. You pay accommodation fee for your hostel, tuition for your education. You pay transportation fee such as airline, railway, taxi, and bus. And the bank charges you interest for the money you borrow, the price for parking your car at shopping mall. Your hairdresser asks charge for cover his service. The “price” of an executive is a salary, the price of a salesperson may be a commission, and the price of a worker is a wage. Price is the amount of money

Price is defined as the amount of money charged for a product or service. In marketing terms, price is considered to be the sum of the values that consumers exchange for the benefits of having and using the product or service. Price is also the only element in the marketing mix that produces revenue—product, place, and promotion are all costs. There are three forms of pricing strategies: customer value-based, cost-based, and competition-based pricing. Customer value-based pricing uses buyers’ perceptions of value to set price and are also used to set the price ceiling for the product. Cost-based pricing uses the costs of producing, selling, and distributing products plus a fair markup for pricing. The cost of the product also sets a price floor. A competition-based pricing is one based on competitors’ strategies and prices and can help the company determine what kind of positioning it wants to take based on how it wants to compete, “such as becoming a price leader, offering the highest quality, or becoming a luxury brand”. (wiseGEEK, 2015)

 The table gives the supply schedules for jet-ski rides by three owners: Rick, Sam, and Tom, the only suppliers of jet-ski rides.

Pricing is important when marketing a product. The determining factor for the pricing is the material, time to make, amount spent on marketing and promotion of the product. The goal in providing such a product that is moderately

Swing Manufacturing and Steady Manufacturing both operate in the widget industry, but with radically different cost structures. Swing is a capital-intensive, automated manufacturer, while Steady is a labor-intensive "job-shop." Monthly operating data are as follows:

3. Suppose that if you buy one Big Mac that gives you marginal utility of 500 and a second

The best strategy for you will depend on your firm, your product and your market. Remember that you do not have to use just one of the strategies outlined above. Many firms, in fact, use more than one approach and arrive at a price that represents a reasonable compromise between each of these strategies.

I declare that this assignment is my individual work. I have not worked collaboratively nor have I copied from any other student’s work or from any other source except where due acknowledgment is made explicitly in the text, nor has any part

positive economic profits. negative economic profits but will try to remain open. negative economic profits and will shut down. zero economic profits.

Indeed, costs should be utilized as a gauge to set the lower bounds of the prices for the products and accommodations you are selling. An efficacious pricing strategy includes elements of several methods. However, regardless of the policy utilized, price must be justified by value to the customer. Recollect, ultimately, customers determine

(Figure 1). This continuum helps describe how pricing methods can best be used to address particular pricing issues based on the level of competition needed to be considered and the depth of pricing knowledge needed.

Further, this paper will include a discussion on potential solutions and opportunities to mitigate the pricing structure.

We can calculate the expected revenue generated by each pricing strategy, but without cost information, it is not possible to determine the preferred price. The cost concepts we introduce are:

The strategy for setting a product’s price often has to be changed when the product is part of a product mix. In this case, the firm looks for a set of prices that maximizes its profits on the total product mix. Pricing is difficult because the various products have related demand and costs and face different degrees of competition.