How Will a Firm's Pricing Strategy Depend on the Structure of the Market?

Companies can choose many ways to set prices, skimming price strategy where a company sets a higher price than normal and a penetrating price where low initial price is set. “Pricing

The setting of ‘fair’ prices to consumers: the company should bear in mind that customers nowadays will shop around to compare the intended products and services. However for the business survival and growth purposes, the company should also maintain its profit margins to ensure its business growth and expansion. The company needs to consider its cost factors and business operation areas to reduce or minimise the costing areas.

There are several different market structures in which organisations can operate. The type of structure will influence a company’s behaviour and the level of profits it can generate. The structure of a market refers to the number of businesses in a market, their market shares and other features which affect the level of competition in the market. Structures are classified in term of the presence or absence of competition. When there is no competition, the market is said to be concentrated. A scale from perfect competition to monopoly can be found below.

A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others.

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.

Different companies operate under different business models and one can see that under some market forms, firms have no control over price, in others they have the power to adjust price in a way that adds to its profits. There are different market structures with perfect competition at one end and pure monopoly at the other. In between are different forms called monopolistic competition and oligopoly that share some of the characteristics of both perfect competition and a monopoly competitive structure (Colander, 2013, Chapter 13). Perfect competition exists when products are homogeneous, and there are many firms too small to have any influence on the market price. These types of businesses can easily enter and exit the industry. A situation where even one producer can affect the price of a good by increasing or withholding output is called imperfect competition. Monopolistic competition exists when many producers of slightly differentiated products are able to sell them at well above their marginal cost. The core of the argument for competition is that as long as competition exists in markets no one producer or group of producers can afford to abuse power by charging too much or by selling bogus goods for fear that consumers might turn away from them to buy from other producers. In line with that argument one of the government’s tasks is to keep competition alive and functioning. A

The overall pricing strategy of any company depends upon the type of demand that is being made by the

The more players there are, the more intense the competition for the same customers. As companies struggle to differentiate themselves, it is easy to make pricing the focal point.

Price has both direct and indirect effects on profit. The direct effect relates to whether the price covers the cost of producing the product. Price affects profit indirectly by influencing how many units sell. The number of products sold also influences profit through economies of scale -- the relative benefit of selling more units. The primary profit-based objective of pricing is to maximize price for long-term profitability. The firms are interested in keeping their prices stable within certain period of time irrespective of changes in demand and costs, so that

Pricing strategy, a very critical component of the marketing mix. Price is usually an important factor affecting the success of the transaction, but also the most difficult to determine the marketing mix of factors. The goal of enterprise pricing is to promote sales and profit. This requires enterprises to consider both the cost of compensation, but also to consider the ability of consumers to accept the price, so that the pricing strategy has a bidirectional decision-making characteristics of buyers and sellers. In addition,

Very often during the preparing of marketing plan the process of pricing is not on the top. But the price has big influence on marketing decisions and its efficiency. Speedily made decisions about the price without any researches and analysis can lead to the company’s losing revenue.

Making decisions are hard enough already, adding a tough decision to decide on which pricing strategy to choose from brings a great deal of stress to a company and the individuals that has to make the decision. Pricing consist of technique, strategy, planning and eventually success of the item and its number of sales. After carefully reading the background information, I realized that there’s more to pricing than just making a profit. Factors come into play from many different angles. Competitors effect the way companies price their product, the strategic planning of the organization itself effects prices. Weather a company lower its product manufacturing costs or use either a lower or higher material to produce the product effects the price customers are willing to pay. There are multiple pricing strategies that companies use to decide the price of their product, strategies such as; good-value pricing, value-added pricing, and value-based pricing to name a few. Companies have certain cost in which they have to cover when trying to price an item. The three major categories for costs of a company is fixed cost; price that do not vary with production or sales, variable costs; costs that vary directly with the production of the product, and there’s total cost; the sum of the fixed and variable cost for any given level of production (Pearson). Overall, making a decision on how much to charge for certain products requires many factors. Based on my knowledge and understanding on

The primary objective of any business organization is to maximize the profits from its operations in order to enrich the wealth of its investors. This calls for provision of high quality goods or services at competitive and optimum prices which allow the company to make good returns while, at the same time, not exploiting their clients. As a result, businesses are forced to come up with good pricing strategies to achieve this. However, pricing strategies are different for businesses depending on the market structure in which they operate. Markets can be classified as perfect competition, monopolistic competition, oligopoly and monopoly. Each of these structures has different characteristics and conditions that call for different pricing

The markets today are so complex and deal with so many variables it can be difficult to understand just exactly how they operate. In the following I will reveal the different kinds of market structures along with their different pricing strategies. Relating to these topics, I will focus on the importance of cost, competition and customer.

Price, which is one of the most important elements of the marketing mix, can be difficult to get right. Pricing too high, or low, can negatively impact on customer satisfaction and revenue. Adopting a pricing strategy is necessary to achieve desired sales objectives (Chan & Wong 2005).