Product-Service Pricing Essay Example
Price is essential in any firm as is the only mix element that generates income. Before starting any business, it is important to understand the factors that influence pricing. According to Walter et al (2010), these factors can be categorized either as internal or external. Furthermore, pricing decisions have to be adapted to a variety of situations derived from market segments. Normally, pricing decisions are determined by the management. The management determines the required price charged for the products or services delivered by the company. In reaching this decision, a systematic approach that is well planned should be adopted in arriving at an acceptable range of price levels. This leads us in discussing the three element influencing management decisions on product or service pricing.
The price of service or product is the outcome derived from the interaction between the demand and supply of product or service. For instance, customers influence pricing through effects they generate on demand of the service or product. This calls for product or service managers in any given business firm to always examine pricing decisions through involving extensive resource on their customers’ demands. Excessive pricing measures may result into company’s product rejection. In achieving these firms estimates prices for a product that they feel customers will potentially pay for (Berends, 2004).
Competitors’ action has major influence on pricing decisions, for example alternative products of a competitor may affect demand and force a business to lower its prices. For instance, in a monopolistic completion market, product differences are identified through branding. In this form of market set up, firm takes up price charge offered by rivals, while ignoring impacts of its own prices (Berends, 2004).
Pricing influence in the product costing results from cost effect on the supply. Occasionally lower product costs relative to price generates a great quantity the firm is willing to supply. In implementing a target pricing, a measurable cost such as 12% target operating income on revenue. In achieving their target, mangers will estimated the incurred cost and charge an extra rate to reach a given price, which promises investment returns (Walter et al, 2010).
Pricing decision is one among many critical decisions making factors in doing business. Making a proper price decision requires extensive research impacts of the price on product purchase, competitor’s pricing strategy and cost incurred getting the product ready for sell. The price offered has influence on demand of the product in a given market, pricing strategy of the competitors, and profitability of the company. In reaching satisfactory price for the firm’s products managers has to value customers’ requirement to compete fairly in the market, and improve on the firm’s performance.
Berends, W. R. (2004). Price and Profit: The Essential Guide to Product and Service Pricing and Profit Forecasting. London: William R. Berends.
Walter et al. (2010). The Price Advantage. New york: John Wiley and Sons.
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