Pricing Policy

1429 WordsNov 26, 20156 Pages
Q2 PRICING POLICY Pricing policy refers to how a company sets the prices of its products and services based on costs, value, demand, and competition. Managers should start setting prices during the development stage as part of strategic pricing to avoid launching products or services that cannot sustain profitable prices in the market. This approach to pricing enables companies to either fit costs to prices or scrap products or services that cannot be generated cost-effectively. Through systematic pricing policies and strategies, companies can reap greater profits and increase or defend their market shares. FACTORS INVOLVED IN PRICING POLICY The pricing of the product involves consideration of the following factors: (i) Cost Data in…show more content…
(iv) Competition Factor in Pricing: Market situation plays an effective role in pricing. Pricing policy has some managerial discretion where there is a considerable degree of imperfection in competition. In perfect competition, the individual producers have no discretion in pricing. They have to accept the price fixed by demand and supply. In monopoly, the producer fixes a high price for his product. In other market situations like oligopoly and monopolistic competition, the individual producers take the prices of the rival products in determining their price. If the primary determinant of price changes in the competitive condition is the market place, the pricing policy can least be categorized as competition based pricing. (v) Profit Factor in Pricing: In fixing the price for products, the producers consider mainly the profit aspect. Each producer has his aim of profit maximization. If the objective is profit maximization, the critical rule is to select the price at which MR = MC. Generally, the pricing policy is based on the goal of obtaining a reasonable profit. Most of the businessmen want to hold the price at constant level. They do not desire frequent price fluctuation. (vi) Government Policy in Pricing: In market economy, the government generally does not interfere in the economic decisions of the economy. It is only in planned economies, the government’s interference is very much. According to
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