Pricing Policy

In: Business and Management

Submitted By fununu
Words 1429
Pages 6
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 Pricing:
Cost data occupy an important place in the price setting processes. There are different types of costs incurred in the production and marketing of the product. There are production costs, promotional expenses like advertising or personal selling as well as taxation, etc. They may necessitate an upward fixing of price. For example, the prices of petrol and gas are rising due to rise in the cost of raw materials, such as crude transportation, refining, etc.
If costs go up, price rise can be quite justified. However, their relevance to the pricing decision must neither be underestimated nor exaggerated. For setting prices apart from costs, a number of other factors have to be taken into consideration. They are demand and competition.
Costs are of two types: fixed costs and variable costs. In the short period, that is, the period in which a firm wants to establish itself, the firm may not cover the fixed costs but it must cover the variable cost. But in the long run, all costs must be covered. If the entire costs are not covered the producer stops production. Subsequently, the supply is reduced which, in turn, may lead to higher…...

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