Pricing Policy

In: Business and Management

Submitted By fununu
Words 1429
Pages 6

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.
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…...

Similar Documents


...[pic] [pic] PRICING POLICY Introduction The fastest and most effective way for a company to realize its maximum profit is to get its pricing right. The right price can boost profit faster than increasing volume will; the wrong price can shrink it Just as quickly. Yet many otherwise tough-minded managers shy away from initiatives to improve price for fear that they will alienate or lose customers. Consider the example of JCPenney stores for Queen sized mattress. The list price is $1699 and after giving away all discounts, the pocket price comes down to $630. Price realization is about decreasing price leakage, increasing pocket price and hence keeping a higher proportion of the list price that adds to the bottom line (profit). The leverage and payoff of improved pricing are high. Compare, for example, the profit implications of a 1 % increase in volume and a 1 % increase in price. For a company with average economics, improving unit volume by 1% yields a 3.3% increase in operating profit, assuming no decrease in price. On the other hand, 1% improvement in price, assuming no loss of volume, increases operating profit by 11.1 %. Improvements in price typically have three to four times the effect on profitability as proportionate increases in volume. Reverse also applies in this case: a mere 1 % price decrease for an average company, for instance, would destroy 11.1 % of the company's operating profit......

Words: 497 - Pages: 2


...A Pricing Strategy to Promote Low-Fat Snack Choices through Vending Machines Simone A. French, PhD, Robert W Jeffery, PhD, Mary Story, PhD, Peter Hannan, MStat, M. Patricia Snyder, RD, MPH Introduction There is general agreement that measures that would reduce the fat content of the diet in the population as a whole would be helpful in preventing or delaying the development of several chronic diseases.1-4 An important question for public health policy, therefore, is how to encourage the population as a whole to make lower-fat food choices. To date, environmental intervention strategies to reduce the population prevalence of high-fat food consumption have focused primarily on improving consumer knowledge through mass media, schoolbased, and point-of-purchase education.-"-- Such interventions have shown positive effects on nutrition knowledge, but changes in food-choice behaviors have been modest in magnitude, variable, and often short lived. Environmental strategies designed to influence food choice through mechanisms of availability and cost rather than nutrition education have received less research attention.5-14 Perhaps the most impressive of these studies in magnitude of effect was a recent cafeteria-based study that examined pricing and availability influences on food choice.'4 Prices of fruit and salad were reduced by 50%, and the number of fruit and salad items available was increased. Purchase of fruit and salad increased threefold......

Words: 2506 - Pages: 11


...Developing Pricing Strategies and Programs Price is the one element of the marketing mix that produces revenue; the other elements produce costs. Prices are perhaps the easiest element of the marketing program to adjust; product features, channels, and even communications take more time. Price also communicates to the market the company’s intended value positioning of its product or brand. A well-designed and marketed product can command a price premium and reap big profits. But new economic realities have caused many consumers to pinch pennies, and many companies have had to carefully review their pricing strategies as a result. For its entire century-and-a-half history, Tiffany’s name has connoted diamonds and luxury. Tiffany designed a pitcher for Abraham Lincoln’s inaugural, made swords for the Civil War, introduced sterling silver to the United States, and designed the “E Pluribus Unum” insignia that adorns $1 bills as well as the Super Bowl and NASCAR trophies. A cultural icon—its Tiffany Blue color is even trademarked—Tiffany has survived the economy’s numerous ups and downs through the years. With the emergence in the late 1990s of the notion of “affordable luxuries,” Tiffany seized the moment by creating a line of cheaper silver jewelry. Its “Return to Tiffany” silver bracelet became a must-have item for teens of a certain set. Earnings skyrocketed for the next five years, but the affordable jewelry brought both an image and a pricing crisis for the company:......

Words: 19446 - Pages: 78

Pricing Policy

...Case Study Summary/Opinion I find the first article to be very inclusive and theoretical with some obvious strong points on pricing. It was very informative and well versed but a little bit outdated. Innovation and brand mystique can show disparities in pricing policy. The examples and theories were predicated on perfectly competitive industries or markets but even with practical type markets that are as close as it gets to perfectly competitive -like vegetables- there are still oscillating prices due to (inferred) quality. I find the section on artificial monopolies to be intriguing because it is something I would want to be a part of. The thought of being able to charge whatever amount comparative to the cost of unit production would be quite a profitable venture. Examples of this however don’t really work, and the checks and balances set up to evade those types of scenarios is so vast that it’s an honestly hard concept to tie down. Outside of a local power company, which can only moderately take advantage in certain locations does this even become pertinent. The natural monopoly details was even more captivating to me because prices would have to be “ready” to change to meet potential entrants into the market. Even then with a readily available price change, I’m glad that it mentioned that the original company would also have to be prepared to drop some of the higher cost buyers in their customer base. The bit on oligopoly markets was a more realistic and......

Words: 413 - Pages: 2


...Pricing Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organization. The remaining 3p’s are the variable cost for the organization. It costs to produce and design a product , it costs to distribute a product and costs to promote it. Price must support these elements of the mix. Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organization. Pricing should take into account the following factors: 1. Fixed and variable costs. 2. Competition 3. Consumers To price this product we are going to use the cost based pricing method. The procedure of this method is that the product cost should be calculated first. To calculate the product cost we need to include the cost of operating the business, which includes raw materials, advertising, wages, rents, and other indirect cost incurred on the product. Once the product cost is calculated, then add the profit level to the product cost to get the selling price. We are using the market penetration pricing strategy to achieve high volumes of sales and deep market penetration of our new product. Calculation of selling price of our product Direct material cost Rs: 10.00 Direct labor cost Rs : 08.00 Variable production overhead Rs: 15.00 Fixed production overheads Rs : 10.00 Total cost ...

Words: 628 - Pages: 3


...service and pricing it high will help imprint that style image into the consumers mind. Many people believe you get what you pay for. A market research team will verify this willingness to pay a high price and thus support the demand curve. In the interest of being practical, variable and fixed costs need to be carefully calculated. A products price must cover cost plus yield a fair profit. In these figures, distribution and promotion decisions must be weighed. DirecTV should anticipate that the demand curve for a technological savy luxury electronic item will be inelastic. Maximizing profit margin should be DirecTV’s goal and realizing that the higher price may drive some consumers out of the market. The high price will still signal high quality and again will feed into the luxury positioning. For new luxury products with a select target group of households with abundant disposable income a good practice to maximize profit margin with skim pricing. This is especially effective when demand is expected to be relatively inelastic. Our target market, technologically savy upper class with disposable income, does not tend to be price sensitive. The plan is to skim the cream off the top. As the product life cycle progresses, there will be likely be changes in the demand curve and cost. At this time, the pricing policy will be re-evaluated. Although skimming is the basic component of the pricing strategy, there are additional approaches to pricing. Through......

Words: 700 - Pages: 3


...This paper written by John Gourville and Dilip Soman connects the two important dots which many people were unaware of i.e. Pricing and the consumption. The author starts the article by relating pricing with demand and with consumption.The firms give more importance to the former than the latter. In the world where word of mouth is considered to be an effective marketing strategy, companies are trying to make the customers to use the product so that they can increase the sales. To make this happen, firms must use the most important tool i.e. pricing. On the other side, consumers are more likely to use the product if they are aware of the cost. But there are some practices followed by the companies which hinder the above fact. Some of these pricing strategies are advance sales, price bundling, season tickets, etc. The author then explains each of these pricing tools with an example. Advance sales take place in most of the gyms, clubs and in magazine subscription. People are more likely to read the magazine if they pay cash each time they get the magazine than the subscription. The author then explains the mentality of the consumers with the term Sunk cost. Once the consumers are aware of the cost of the product, they are unlikely to forgo the product under any circumstances. Because they have paid for the product, it creates the feeling of wasting money and they end up using the product. He then explains that mode of payment also plays an important role while using the product...

Words: 539 - Pages: 3


...the Pricing Predicament This case is about a bid from Scott at Standard Machine to Occidental Aerospace, their largest and most loyal account. Scott placed a bid for $429K. Joann is the purchasing agent at Occidental Aerospace. Joann notified Scott she had received lower bids and offered him a chance to change his bid to $22k less than his original bid. Joann also reminded him they would be building two more plants which could be more potential business. Standard Machine uses a fixed policy for bids. It appears that Occidental Aerospace wants to continue doing business with Standard Machine which is why they are giving them a chance to submit a new bid. I believe the main reason Standard Machine is in this difficult situation is because they are sticking to a fixed pricing policy. In order to beat the competition and keep the relationship with Occidental Aerospace, they need to figure out a different pricing strategy. Another reason they may be in this situation is the fact Occidental Aerospace is giving information out regarding bids by other competitors. This could be considered a violation of ethics. Standard Machine also does not know if this “inside” information is accurate or not. Joann could just be giving false information to get a lower bid and still keep the relationship between them and Standard Machine. As far as what has changed in the business relationship between Standard Machine and Occidental Aerospace, competition has increased and better pricing.......

Words: 1347 - Pages: 6

Pricing Policy

...പുനത്തിൽ കുഞ്ഞബ്ദുള്ള രചിച്ച നോവലാണ് സ്മാരകശിലകൾ. നോവൽ സാഹിത്യത്തിനുള്ള 1978-ലെ കേരള സാഹിത്യ അക്കാദമി അവാർഡും 1980-ലെ കേന്ദ്ര സാഹിത്യ അക്കാദമി അവാർഡും ലഭിച്ച കൃതിയാണിത്.[1]പുനത്തിലിന്റെ മികച്ച കൃതിയായി സ്മാരകശിലകൾ കണക്കാക്കപ്പെടുന്നു.[2] വടക്കൻ മലബാറിലെ സമ്പന്നമായ അറയ്ക്കൽ തറവാടും അതിനെ ചുറ്റിപ്പറ്റിയുള്ള ഒരു വിഭാഗം ജനങ്ങളുടെയും കഥയാണ് ഈ നോവൽ പറയുന്നത്. ഖാൻ ബഹദൂർ പൂക്കോയ തങ്ങൾ, കുഞ്ഞാലി, പൂക്കുഞ്ഞീബി ആ‌റ്റബീ തുടങ്ങിയവരാണ് പ്രധാന കഥാപാത്രങ്ങൾ. ഈ നോവലിന് അവതാരിക എഴുതിയത് പ്രശസ്ത സാഹിത്യകാരൻ കോവിലൻ ആണ്. കേരള സാഹിത്യ ചരിത്രത്തില്‍ ഒരു സ്മാരകശിലയാകുകയാണ് പുനത്തില്‍ കുഞ്ഞബ്ദുള്ളയുടെ ‘സ്മാരക ശിലകള്‍’. കേരള സാഹിത്യ അക്കാദമി അവാര്‍ഡും കേന്ദ്ര സാഹിത്യ അക്കാദമി അവാര്‍ഡും ലഭിച്ച നോവലിന്റെ 65000ല്‍ അധികം കോപ്പികളാണ് ഇതിനകം വിറ്റഴിഞ്ഞിരിക്കുന്നത്. 1977ല്‍ പുറത്തിറങ്ങിയ ഈ നോവലിന്റെ ആദ്യ ഡി.സി പതിപ്പ് പുറത്തിറഞ്ഞിയത് 1993ലാണ് . നോവലിന്റെ 19ാം പതിപ്പാണ് ഇപ്പോള്‍ പുറത്തിറങ്ങിയിരിക്കുന്നത്. അതിപുരാതനവും തകര്‍ച്ചയുടെ വക്കിലെത്തിയതുമായ ഒരു പള്ളിയും പള്ളിക്ക് ചുറ്റുമുളള മനുഷ്യ ജീവിതങ്ങളുടെ കഥകളുമാണ് ‘സ്മാരക ശിലകള്‍’ പറയുന്നത്. മനുഷ്യരേയും പ്രകൃതിയേയും ചൂഴ്ന്നു നില്‍ക്കുന്ന ഒട്ടനവധി കെട്ടുകഥകള്‍ എല്ലായിടത്തുമുണ്ട്. അത്തരം മിത്തുകളെ പൊലിപ്പിച്ച് നോവലിന്റെ രൂപഭംഗി കൂട്ടാന്‍ മനപ്പൂര്‍വ്വമായ ഒരു ശ്രമവും നടത്താന്‍ പുനത്തില്‍ സ്മാരക ശിലയില്‍ ശ്രമിച്ചിട്ടില്ല. ഏതു മനുഷ്യനും ഇതിഹാസവല്‍കരിക്കുന്ന പ്രവണത എല്ലായിടത്തുമുണ്ട്. എന്നാല്‍ കെട്ടുകഥകളെ ജീവിത ഗന്ധിയായ കഥകളാക്കി മാറ്റുകയാണ് പുനത്തില്‍ ഇവിടെ ചെയ്തിരിക്കുന്നത്. ഖാന്‍ ബഹദൂര്‍ പുക്കോയ തങ്ങളാണ് നോവലിലെ പ്രധാന കഥാപാത്രം.അദ്ദേഹത്തിന് ചുറ്റുമുള്ള......

Words: 372 - Pages: 2

Pricing Policy Coca Cola Macedonia

...remain fluent with their pricing strategies like any other successful company with more than a century of existence. Consumers are not just buying a beverage but also an image that goes with the drink, thus to have the price higher reiterates the fact that the product is with a better quality compared with the other products and the consumer are not cheap. This pricing is known as value-based pricing. Coca Cola remains as the most expensive brand in Macedonia for soft drinks. Its prices are in accordance to the people with medium to high income. In Macedonia, the average net income is 300 euros per month, which means that almost everyone can afford to buy Coca Cola due to its selection of packages. Competition The Coca Cola Company competes in the nonalcoholic beverage segment of the commercial beverage industry. The nonalcoholic beverage segment can be divided in a couple of groups: soft drinks, juices and bottled mineral water. Coca Cola is in the group of soft drinks. The main competitor on a global level and as well in Macedonia is Pepsi Co. The remaining groups in the nonalcoholic beverage segment are indirect competitors of Coca Cola because they also satisfy the need of thirst. Prilep Brewery is in charge of Pepsi Co since 1979, when it was signed an agreement between Prilep Brewery and Pepsi Co to produce licensed drinks of the Pepsi family. It is usually second to Coca Cola in sales, and outsells Coca-Cola in some markets. Pepsi Co pricing is based on......

Words: 2083 - Pages: 9


...Marketing 635 MARKETING ANALYTICS AND PRICING Fall 2015 MW 9:35-10:50 – WCBA 184 Instructor: Office: Office Hours: Office Phone: E-mail: Website: Dr. Yan Liu 220U Wehner Building by appointment 845-2547** **Outside of the classroom, my preferred method of communication is via e-mail. Please note that I will often use e-mail to communicate with you class information. I will send these messages to your neo email account, so please check this account on a regular basis. Required Materials (1) Text Book  (2) Nagle, Thomas T., John E. Hogan and Joseph Zale, the Strategy and Tactics of Pricing, Fifth Edition, Pearson-Prentice Hall, Upper Saddle River, NJ. Packet of Cases and Readings. (  Click the link above and set up a HBP account as a student if you don’t have one.(you can use any email address, not necessarily school email address)  Choose coursepack mktg653 and make the purchase (audio version of the cases are optional).  You have one-year access to this online course pack.  Please save the cases to your computer for future usage.  Although you purchase digital version of the cases, you can print them out if you wish. Course Prerequisite Completed MKTG 625 Course Description This course is designed to introduce you to pricing fundamentals and pricing strategies. The course is quantitative in nature and will cover a number...

Words: 4739 - Pages: 19


...SUMMER 2007 V O L . 4 8 N O. 4 Arvind Sahay How to Reap Higher Profits With Dynamic Pricing Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published. REPRINT NUMBER 48415 pricing How to Reap Higher Profits With  Dynamic Pricing S un Microsystems Inc. chairman Scott McNealy forecast that “With recent advances in wireless and information technology, even our cars could … call for bids whenever the fuel tank runs low, displaying a list of results from nearby gas stations right on the dashboard.”1 It sounds far-fetched. But dynamic pricing — where prices respond to supply and demand pressures in real time or near-real time — is making inroads in many different sectors, including apparel, automobiles, consumer electronics, personal services (such as haircuts), telecommunications and second-hand goods. The advent of the Internet led to cost transparency, decreased search costs and ease of price comparison. Some observers concluded that as a result, prices would decrease and equalize across different channels, and that fixed prices would continue to be the norm.2 However, price dispersion continues to be widespread and dynamic pricing is entering new sectors. EBay Inc. used auctions to sell more than $20 billion worth of goods in 2005. Ford Motor Co. sold more than $50 billion worth of automobiles in North America with demand-based DP in......

Words: 6384 - Pages: 26

Pricing and Pricing Policies

...PRICING AND PRICING POLICIES PRICING Pricing is the process whereby a business sets the price at which it will sell its products or services. It is a method 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. See also pricing strategy. PRICING POLICIES Pricing policy refers how a company sets the prices of its products and services based on costs, value, demand, and competition Pricing Policies provide the framework and consistency needed by the firm to make reasonable, practicable, and effective pricing decisions. Although policies in any area of management are difficult to develop, firms with a well-established set of pricing policies usually make consistently better pricing decisions than firms without such policies. STEPS IN SETTING A PRICING POLICY 1.) Selecting the Pricing Objective – it is where the company wants to position its product a. Survival b. Maximum Current Profit - estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or rate of return on investment. c. Maximize Market Share/ Market Penetration – low price d. Maximum Product ......

Words: 2081 - Pages: 9

Pricing Production, Manufacturing and Logistics Pricing decisions for complementary products with firms’ different market powers Jie Wei a,⇑, Jing Zhao b, Yongjian Li c a General Courses Department, Military Transportation University, Tianjin 300161, PR China School of Science, Tianjin Polytechnic University, Tianjin 300160, PR China c Business School, Nankai University, Tianjin 300071, PR China b a r t i c l e i n f o Article history: Received 25 July 2011 Accepted 5 September 2012 Available online 11 September 2012 Keywords: Pricing Complementary products Market power Stackelberg game a b s t r a c t This article reports the results of a study that explores the pricing problems with regard to two complementary products in a supply chain with two manufacturers and one common retailer. The authors establish five pricing models under decentralized decision cases, including the MS-Bertrand, MS-Stackelberg, RS-Bertrand, RS-Stackelberg, and NG models, with consideration of different market power structures among channel members. By applying a game-theoretical approach, corresponding analytic solutions are obtained. Then, by comparing the maximum profits and optimal pricing decisions obtained in different decision cases, interesting and valuable managerial insights are established. Ó 2012 Elsevier B.V. All rights reserved. 1. Introduction Pricing policy has long been recognized as a significant tool for use in the profit......

Words: 11966 - Pages: 48

Basic Pricing Policy and Concepts

...Basic Pricing Policy and Concepts It is the government’s policy to obtain its products and services through contracting at fair and reasonable prices. What seems like a fairly easy undertaking is a bit more complex than the term implies. There are several factors to consider when a purchase is made. Regardless of the service or product being sought, what is fair and reasonable as it relates to price is a matter of good personal judgment. Because determining what is reasonable is determined by personal judgment, government contracting individuals may not agree on what is a reasonable price. On factor to consider when deciding on the reasonableness of the price is quality. It is expected that we will pay a little more for good quality product than we would for what would be considered “normal”. Other factors include the amount of time given to make the purchase and if there is a particular brand that is being sought. An emergency purchase is usually a bit more expensive than a purchase in which more time is available to research and negotiate price. Oftentimes, name brand items cost more than their generic or non-named counterparts. Pricing Restraints in Government Contracting The average consumer determines what they are willing to pay for a particular good/service using their own personal judgment; what is good to them. They are spending their own money and therefore don’t have to answer to anyone. They are free to purchase from whomever and where ever they choose....

Words: 508 - Pages: 3