Why Managers Involves Pricing Their Products And Services

A Pricing strategy refers to method companies use to price their products or services. Almost all companies, large or small, base the price of their products and services on production, labour and advertising expenses and then add on a certain percentage so they can make a profit. Pricing strategy in marketing is the pursuit of identifying the optimum price for a product. This strategy is combined with the other marketing principles known as the four P 's (product, place, price, and promotion), market demand, product characteristics, competition, and economic patterns. The pricing strategy tends to be one of the more critical components of the marketing mix and is focused on generating revenue and ultimately profit for the company. The

Cost-plus pricing lead to a complicated pricing structures, since distributors and customers negotiated separate product prices from manufacturers, introduced incentives, let prices vary from customer to customer, covered some products by contract and some don’t etc.

Describe and give examples of some of the following types of pricing objectives: profit, market share, competitive effect, customer satisfaction, and image enhancements.

Cost-plus pricing - Set the price at your production cost, including both cost of goods and fixed costs at your current volume, plus a certain profit margin. For example, your widgets cost $20 in raw materials and production costs, and at current sales volume (or anticipated initial sales volume), your fixed costs come to $30 per unit. Your total cost is $50 per unit. You decide that you want to operate at a 20% markup, so you add $10 (20% x $50) to the cost and come up with a price of $60 per unit. So long as you have your costs calculated correctly and have accurately predicted your sales volume, you will always be operating at a profit. (Allen, 2012)

We combine the cost information with price information to determine unit contribution and total contribution.

Pricing is very important because it is the only element that generates a turnover for the organization. Price supports the remaining P’s, as they are the variable cost. Pricing is difficult as it must follow the laws of supply and demand. However, the pricing response of competitors must be taken into consideration when

Cost-plus pricing: involves estimating how many product will be produced, then calculating the total cost of producing the output and adding percentage mark-up for profit.

In this paper, I will cover five different pricing strategies used, by retailers and manufacturers, to sell their products. I will demonstrate how pricing products according to one of the five pricing strategies chosen works effectively for each company.

Within a given organization, one of the most important factors in creating a successful strategy is that of pricing. If your organization sets the price for the goods or services too high, potential customers may be driven away and left to search for a more reasonable alternative. If prices are set too low, your profit margin will shrink and it will be tougher to be a successful company. Setting the right price is a delicate operation, with factors constantly changing and evolving over the life cycle of the product. A manager must know the cost associated with the good or service before they may set an appropriate price. Two key elements in determining product cost are operating expenses and the cost of goods. Operating costs is the expense it takes to keep the business running, which includes factors such as overhead, payroll, office supplies, and marketing. The cost of goods is the amount paid for the product, as well as any associated shipping and handling. Whatever strategy is used in determining pricing, the retail price of the products should always cover the product cost and the operating expenses. If pricing is set below costs, there is no way to be profitable and succeed.

The pricing model suggests that at the point where marginal revenue equals marginal costs (MR=MC) the goal is achieved and owner’s profits are maximised (Begg et al. 2011). By further investigating the model (see Figure 1) it is clear the firm wants to produce as much as possible to spread the fixed costs between produced units and yield a profit. Marginal revenue has to be equal with marginal costs because if the MC>MR the cost of every extra unit produced will be higher than what can be earned for it. Logically the price is set at the quantity demanded, but bearing in mind the point where MR=MC. And finally, the firm’s profit would be the difference between average costs and the actual price; TR-TC=profit.

• There are several factors that need to be taken under consideration before deciding your product pricing strategy.

Yet pricing decisions can have important consequences for the marketing organization and the attention given by the marketer to pricing is just as important as the attention given to more recognizable marketing activities.  Some reasons pricing is important include:

2. Cost----Price becomes cost to the customer. It includes the customers purchase cost, also means that the ideal product pricing. This should be lower than the customers psychological price, but also can let firm makes the profits.

of an individual product/service and not the pricing across a set of products in a product line. Thus in the

Pricing Techniques: are the methods adopted by a firm to set its selling price. It usually depends on the firm's average costs, and on the customer's perceived value of the product in comparison to his or her perceived value of the competing products. Different pricing methods place varying degree of emphasis on selection, estimation, and evaluation of costs, comparative analysis, and market situation. It takes into view factors such as a firm's overall marketing objectives, consumer demand, product attributes, competitors' pricing, and market and economic trends. The term pricing technique is also called cost plus because it attempts to