What is The Pricing process? Factors Affecting The Pricing Strategy.

6 Steps Pricing Process

pricing-process

Pricing process are the most important decisions to be made by businesses and industrial enterprises. These choices determine the market share and competitive situation of a company. These choices also affect the total revenue and net profit of the business. In addition to this, marketing and sales promotions Programs are also changed by pricing strategy. Therefore, a decision about determining the price of a product must be made only after considering all the relevant features.

How can marketing know what price to charge? Arriving at the “correct” price involves examining a number of financial and non-financial factors, putting these variables in the context of the overall business environment, and finally relying on a healthy dose of experience and judgment. The includes six general steps.

1. Analyze market conditions:

Pricing starts with a study of the market conditions, the most significant part of which is understanding the relationship between price and demand. In some cases, changes in price can greatly impact demand; in other cases, a major change in price does little to modify demand.

 2. Identify constraints:

Pricing shouldn’t happen in a vacuum. Numerous Constraints limit the prices that a company can set. Constraints such as production costs set lower limits for price. Other factors, such as customer Perceptions and competitive pressure, tend to set higher limits on price. For
For example, when Texas Instruments gets ready to price a new integrated circuit, it has to look at its own internal costs to see how much it needs to recover in order to stay profitable.

Then it must look at what buyers want, what they are willing to pay, and what rivals can offer. In addition, TI must consider a variety of government rules that are meant to prevent companies from doing things such as selling goods below cost in order to eliminate competition.

3. Establish objectives:

Like all business choices, the pricing process should be led by clearly stated goals. A firm’s pricing goals should be linked with its marketing strategy and its general business plan. Some typical Objectives might be producing a specified amount of profit, selling a certain number of goods, or capturing some part of the market. Of course, Objectives can be changed over time as a company reacts to both internal and external changes.

4. Analyze profit potential:

The next step is to figure in the cost, which tells them the marketer how beneficial a given business attempt will be. Think of price as the amount the customer must spend to buy a product, and costs as the amount the maker has to spend to make the market and product. The
The gap between price and cost is the producer’s profit. The four variables of demand, price, profit, and cost are closely related.

For example, if MTNL tale com dropped the price of long-distance service to one-tenth its present level, customers would certainly place more phone calls. But MTNL tale com wouldn’t be able to cover its costs and therefore wouldn’t make any profit. On the other hand, the company could increase the price of long-distance service to ten times the current level and make a lot of profit on every call, but then Customers would place fewer long-distance calls. In either case, the company’s Price is a balance act.

5. Determine the starting price level:

With the first four steps finished, The next step is setting the starting price. Marketers have created a number of techniques to help at this stage. For example, if you’re about to introduce the world’s first wristwatch fax machine, you’ll probably start with a high price and then gradually bring the price down over time. If buyers need a wristwatch or a fax machine, and you’re the only source in town, you have some extra flexibility in setting your price.

On the other hand, if you have a number of established competitors and your objective is to capture significant market share as soon as possible, you might pick a price that is near the low end of the range of possibilities so that customers will have a good reason to leave your competitors and come knocking on your door. Depending on the price-demand profit relationships, your pricing goals, and the constraints you’ve found, various methods are available to lead you toward the best price.

6. Change and manage prices:

The final step is to change and manage prices.in reaction to particular situations or changing market factors. The range of The list of possible actions here is wide and includes such modifications as discounts, geographic adjustments to cover shipping costs, and price changes to accommodate maturing goods. Later, these pricing changes will play a key role in building or keeping a competitive edge.

Thus, pricing of process are related to a certain amount of time because it is important. Changes must be made to these choices according to the need for time and circumstances. The price of a product must be determined in such a manner that it may give a seasonable amount of profit to the producer, an acceptable amount of remuneration to the middlemen, and maximum happiness to the consumers.

Others Factors Affecting The Pricing Strategy

1. Objectives Of The Enterprise

i) To bring price stability;

ii) To bring stability to the margin of profit;

iii) To face the competition;

iv) To grow market share or to keep it;

v) To determine the prices of goods according to the paying capacity of consumers; viii) The long-term health of the business

2. Cost factors:

Cost factors are the most important factors affecting pricing process. Choice of a business Cost factors include the following:

i) Cost of raw materials;

ii) Manufacturing cost;

iii) Administrative overheads;

iv) Cost of transportation;

v) Cost of storage;

vi) Cost of advertising;

vii) Cost of marketing; and

viii) Cost of selling, etc.

3. Characteristics of the product:

The characteristics of a product also determine the price choice of a business. Important features of the product affecting a pricing choice are:

i) Nature of the product;

ii) Stage of the product in its life cycle;

iii) Availability of replacements for the goods;

iv) Possibilities of delayed demand for the product;

v) Product diversification, etc.

4. Price elasticity of demand:

The product pricing elasticity of demand of a product impacts the pricing choice of its business. If the market for a product is inelastic, A higher price may be set for it. If, on the other hand, the demand If the price of a product is highly variable, the price of the product must be cheap.

5. Channels of distribution of the product:

If a product goes through many channels of distribution from supplier to customer, the price of Such products will be more expensive because every channel of distribution has to be paid some remuneration. If, on the other hand, the number of lines of If marketing for a product is limited, product pricing can be cheap. Because less remuneration will have to be paid to its means of delivery.

6. Characteristics of consumers:

Characteristics of customers for whom The product for which it is meant also affects price plans choices to a great extent. The price of industrial goods is usually kept low. The price of a product that is used by buyers with low incomes is also found to be cheap. The price of the product bought by customers with high incomes may be higher.

7. Pricing policies of competitors:

The pricing strategy of competitors of a Product also play an important part in the selection of a price for the product. If the product pricing set by the competitors for their product is low, The business will also have to determine its price.

8. Trade conditions and customs:

Prevailing conditions and customs in Marketing a particular product also affect the pricing choices of a business. For example, a guarantee of free service for a certain time has been a common practice for consumer goods of a technical type, such as fans, TVs, refrigerators, cameras, watches, tape recorders, etc. Therefore, the price of such goods must be decided keeping in mind the estimated cost of repair for such a time.

9. Economic environment:

The economic environment of the country also impacts the pricing choices of a business. If there is an economic slump, the Product pricing must be kept low in order to meet their needs.

The pricing process refers to the systematic method that businesses use to determine the best price for their goods or services. An effective pricing plans is important for a company’s success, as it directly impacts its revenue, profit margins, and general competitiveness in the market. Remember, pricing strategy is not a one-time choice, and it should be constantly reviewed and adjusted as the market changes and new information becomes available. Flexibility and speed are significant in the pricing process to stay competitive and meet customer demands effectively.

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