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| Factors affecting pricing |
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Factors affecting pricing- the price of company product or services is influenced by many factors:
- organization and effectiveness of production processes
- price strategy, goals and objectives of management
- brand value
- marketing decisions
- level of innovation
- technology used
- competition on the market
- prices of substitutes
- taxes and tariffs
- price of resources and raw materials
- overall state of economy
- social perception of product
- customer expectations
Price Stability
Price stability is a goal of fiscal and monetary policy. Policy should keep very low rate of inflation (increase of the general price level in an economy) or deflation (decrease of the general price level in an economy).
An important feature approaches of the rule-based to monetary policy is the increased emphasis given to a particular policy objective: maintaining stable and a low rate of inflation. Keynesian macroeconometric tell that the Variations in the growth rate of prices and wages are found to be associated with substantial variations in economic activity and employment. Existence of such as "Phillips-curve" relations has typically been held to imply that monetary policy should be used to achieve output or employment goals, rather than giving priority to price stability. Instabiliy of the general level of prices causes substantial real distortions leading to inefficient variation both in aggregate employment and in the sectoral composition of economic activity that price stability is important[1].
Price Mechanism
When a company want to sets the sale price of the product produced, it will take into account the price at which it could acquire the goods, the market place, competition, the manufacturing costs, brand and quality. All prices must cover profits and costs.
A price mechanism in economic is the way in which the prices of goods or services affect the supply and demand of goods and services, especially by the price elasticity of demand. A price mechanism applies to both buyers and sellers who negotiate prices, is also a part of a market mechanism which includes various ways to match up buyers and sellers[2].
Pricing Strategy
Six approaches to pricing strategy[3]:
- Operations-oriented pricing - where the aim is to optimize productive capacity, to gain operational efficiencies or to match supply and demand through different prices.
- Revenue-oriented pricing - where the marketer seeks to maximize the profits (the surplus income over costs) or to cover costs and break even. For example, dynamic pricing, is a form of revenue oriented pricing.
- Customer-oriented pricing - where the objective is to maximize the number of customers; can recognize different levels in the customer's ability to pay.
- Value-based pricing - The aim of value-based pricing is to reinforce the overall positioning strategy. For example: pricing posture to pursue or maintain a luxury image.
- Relationship-oriented pricing - where the price are set in order to build or maintain relationships with existing or potential customers.
- Socially-oriented pricing - Where the objective is to encourage or discourage specific social behaviors. For example: high tariffs on tobacco to discourage smoking
References
- Dibb S, Simkin L., Pride W.C., Ferrell O.C. (2013), Marketing: Concepts and Strategies
- Lambert Z. V. (1970), Product perception: An important variable in price strategy. The Journal of Marketing, 68-71.
- Shaw W.H. (2008). 'Business Ethics: Sixth Edition', Thomson Wadsworth
- Woodford M. (2003), 'Interest and Prices: Foundations of a Theory of Monetary Policy', Princeton University Press.
Footnotes
Author: Karolina Piotrowska
