Business Pricing Objectives and Strategy Selection
Pricing Concepts
Price: When a product is well received, the company sets a price that aims for more than just the winning margin set by the company.
PTO Balance (Break-Even Point): Point where the company, to produce or sell, experiences neither gain nor loss.
Price Objectives:
- Market Positioning: The company sets the price, which may also be called maximizing market participation.
- Survive: Survival is the main objective when faced with fierce competition, even when the situation is difficult. This is only a short-term goal.
- Market Skimming: This means targeting consumers who demand the product most and are willing to endure higher prices.
Pricing Considerations:
- There should be high demand from a sufficient number of purchases.
- The costs of producing a small volume of units must not be so high as to discourage production.
- A high initial price should not attract the mass market; this price targets innovators looking for exclusivity.
- A high price conveys the image of a superior product.
Calculation of Application:
The company uses provided information to calculate demand and statistical or historical data to draw an average of sales.
Estimated Cost:
Determine the cost base for the margin. If the firm knows its cost estimate, it can best optimize its mark-up costs.
Analysis of Cost, Price, and Competition Supply:
One can estimate the costs of competition by learning about their suppliers, production levels, firm size, etc.
Selection of the Pricing Strategy:
- Price-fixing by banks.
- Pricing for return on investment.
- Pricing based on perceived value.
- Prices based on value.
- Price-setting competition.
- Price-setting auction.
Price Elasticity of Demand:
- Elastic: An increase in price leads to a variation in the quantity demanded that is more than proportional. This measures the sensitivity of the market.
- Inelastic: When the price rises and demand falls, but not in the same proportion as the price rise (it falls by a lower percentage). The market is insensitive to the price increase because the goods are necessary.
- Unitary: If a gain or loss occurs in the same proportion.
Be Leaders in Product Quality:
This means that the products are of good quality at a mid-price. These companies manage their costs well, seeking a balance. They are exclusive but also manage their fixed costs to achieve the highest volume of sales, thus lowering the costs.