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
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(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
What are the main reasons why government should take only a limited role in a market economy?
Government plays a crucial role in the market economy by ensuring the laws and regulation are abide by, and control the production of the private sectors, although, over the years its efforts in controlling such economies are minimal and insignificant. Market forces of demand and supply play a major role in setting trends that such market economies follow. Economic growth, inflation, interest rates, wage rates of workers and unemployment rates are some of the fields the government takes part in controlling, to boost the Gross National Product (GNP) of the state.
Competition within the industry as well as market supply and demand conditions set the price of products sold.
The price adjusts to rise when the quantity demanded exceeds the quantity supplied and for price to fall when the quantity supplied exceeds the quantity demanded is a central elements to supply and demand. Although individuals tendencies to change prices exist as quantity supplied and quantity demanded differ the changes in price brings the law of supply and demand into play. Whenever the quantity supplied and quantity demanded are unequal, price will stay the same cause no one will have an incentive to change. One thing to remember equilibrium is not the model framework they use to look at the world. Although to establishing the current value of a consumer product Economics has evolved through the centuries there are a few factors that led to a change in
there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, which allows price to change in response to changes in supply and demand. Furthermore, for almost every product there are substitutes, so if one product becomes too expensive, a buyer can choose a cheaper substitute instead. In a market with many buyers and sellers, both the consumer and the supplier have equal ability to influence price.
E., & Gould, J. P., 1966). Furthermore, the members are price takers and do not have the power to influence price changes. We now understand that perfectly competitive markets are very rare and that in reality our product exists in a different type of market. The four types of markets are: Monopoly, Oligopoly, Monopolistic competition, and perfect competition. Our company has gained enough power in the market to influence price and allow it to choose its own optimal price. This means that establishing an equilibrium where QD = QS does not necessarily apply. Perhaps our company has developed an innovation that makes the quality of our microwave meal much better than our competitors or we have developed a process than drastically lowers the cost of processing the ingredients for our product. Regardless of the reason, our company now has a competitive advantage and we must take advantage of it in order to become dominant in our industry.
Pricing your products is actually one of the hardest decisions for a new business owner to make. Make the prices too high and no one will want to buy. Make the prices too low and you can't make a profit. Not knowing how to price products properly is a common challenge for new business owner. And it is one that can make or break a company.
Internal factors are establishing prices and marketers ought to take into consideration the importance and significance of a number of factors which is the outcome of the organizations choices, results, and actions. These factors are manageable by the organization and they may be modified, if need be. In spite of this, making a swift transformation is not always the answer or the quick fix. For example, product pricing is determined or influenced by the productivity of an industrial facility. The salesperson realizes that rising productivity can decrease of expense of manufacturing every product and therefore lets the salesperson to possibly reduce the price. External factors are not managed by the organization but then again it will influence the choices of pricing. Being able to better comprehend these factors would entail the marketer conduct research to observe and evaluate everything that is going on in all of the markets that the organization works for because of the influences of these factors can differ within the market (Factors Affecting Pricing Decision, 2016). External forces that can impact the organization are unmanageable because the organization does not manage them however, the organization can still take action and adjust to their occurrences and effects with the organizations manageable blend of components from the organizations internal setting. The unmanageable influences in the external setting are rivalry, governmental policies and plan, natural influences, social and cultural influences, demographic determinants, and changes within technology (Bright,
something else. A business can use a variety of pricing strategies. The price can be set to maximize profitability Businesses may benefit from lowering or raising prices. Pricing depends on the needs and behavior of customers. Business need to find what pricing will make them successful business.
Competition within the industry as well as market supply and demand conditions set the price of products sold.
Based on these 6 factors in setting a price: selecting the pricing objective, determining demand, estimating costs, analyzing competitors costs, prices and offers, selecting a pricing method and selecting the final price, Singapore GP Pte Ltd employed 2 different pricing strategies. They are
Pure competition involves number of companies or firms manufacturing similar or identical goods. In such pure competition the firms have no control over the prices. These companies are often termed as "Price Takers". The pricing strategy is no in hands of the company it is determined by market forces. The firms operating in a pure competition manufacture standardized products which do not offer them a chance to differentiate their products on the basis of some unique feature of the product. The firms also do not spend on advertising their products because of the standardized nature of the products the firms manufacture.
Value pricing is gaining attention among businesses. However, academic studies on pricing are not as many as those on other classical pricing strategies. Additionally, an analysis conducted between 1983 and 2006 shows that the average adoption rate of value pricing is only 17% (Hinterhuber, 2008), which means that the cost-based and competition-based pricing still dominating in pricing decisions.
b) In a monopolistic competition structure, although there are numerous firms, they carry different products. Due to product differentiation, each company is able to somewhat control their own pricing.
Some firms fix the price of a product based on the demand, instead of fixing the price on the basis of competitors price or costs. Demand oriented pricing is based on an estimate of how much sales volume can be expected at various prices which can be paid by different types of buyers. If the demand is high the price will be higher and if the demand is low the price will be lower. In such situation, price is fixed neither based on the cost nor on the price of competitors. There are two methods adopted for fixing the price in such situations. They are: