Meaning Of Pricing:

Pricing is a process of defining the value that a manufacturer receives when exchanging services and goods. The pricing method is applied to suitably adjust the cost of the manufacturer’s offerings for both the manufacturer and the customer. The price depends on the company’s average prices and the buyer’s perceived value of an item compared to the perceived value of a competitor’s product.

Every entrepreneur starts a business with the motive and intention of making a profit. This ambition can be acquired through a company’s pricing methodology. When determining the cost of products and services, the following point should be considered:

  • The identity of goods and services.
  • The cost of similar goods and services in the market.
  • The target group for which the goods and services are produced.
  • The total cost of production (raw material, labor cost, machine cost, transportation cost, inventory cost, etc.).
  • External elements include government rules and regulations, policies, the economy, etc.

Price Targets:

Survive:

The goal of pricing for any business is to set a reasonable price for consumers and the manufacturer to survive in the market. Every business risks being push out of the market due to fierce competition and changing customer preferences and tastes. Therefore, when determining the cost of a product, all variables and fixed costs must consider. Once the survival phase is over, the company can increase profits.

Expanding Running Profits:

Most companies try to increase their profit margins by evaluating the demand and supply of services and goods in the market. Thus, the price is set based on the need for the product and the replacement for that product. If the demand is high, the price will also be increased.

Rule The Market:

Businesses set a low value on goods and services to achieve a significant market size. The technique helps increase sales by increasing demand and reducing production costs.

A Market For An Innovative Idea:

Here the company charges a high price for its products and services that are highly innovative and use advanced technology. The price is high due to the high cost of production. Mobile phones and electronic devices are some examples.

What Is The Pricing Method?

The pricing method is a technique used by a company to evaluate the cost of its products. This process is the most difficult challenge for a company as the price has to fit the current market structure complementing the company’s costs and making a profit. Additionally, you need to consider the price of the competitor’s product, so choosing a suitable pricing method is crucial.

Types Of Pricing Methods:

The pricing method is divided into two parts:

Cost-based pricing method:

It is the basis for evaluating the price of finished products, and most companies use this method to calculate the cost of the product. This procedure is further divided into the following forms.

Cost-Plus Pricing

With this pricing, the manufacturer calculates the sustainable cost of production and includes a fixed percentage (also called a markup) to determine the selling price. Then, the profit margin evaluates based on the total costs (fix and variable costs).

Markup Price

This is where the fixed number or percentage of a product’s total cost adds to the product’s final price to arrive at a product’s retail price.

Pricing Of Target Return:

The company sets the cost of the product to achieve a return on investment.

Market-Based Pricing Method:

This category is determined based on market research.

Perceived Value Price: In this method, the manufacturer sets the cost considering the customer’s approach to the goods and services, including other elements such as product quality, advertising, promotion, distribution, etc., that affect the customer’s view.

Value Price:

Here the company produces a high-quality product but at a low price.

Going Pricing:

In this method, the company looks at the competitor’s price as the basis for deciding the price of its product. Typically, the cost of the product is about the same as the competition.

Importance of Pricing

  • Pricing can affect a business’s profitability. A well-priced product can help a business generate a healthy profit margin, while a poorly priced product can lead to losses.
  • Pricing can affect a business’s market share. A lower price can help a business attract more customers, while a higher price can help it differentiate its products from the competition.
  • Pricing can affect a business’s image. A high price signal quality, while a low price signal affordability.
  • Pricing can affect a business’s cash flow. A higher price can generate more cash flow upfront, while a lower price can generate more cash flow over time.

Factors Affecting the Pricing of the Products

  1. Cost: The cost of producing and delivering the product is a major factor in pricing. Businesses need to cover their costs to be profitable.
  2. Demand: The demand for the product is another important factor. Businesses can charge a higher price if there is a high demand for the product.
  3. Competition: The prices of competing products also affect the price of a product. Businesses requirement to price their products competitively to attract customers.
  4. Government regulations: Governments often regulate prices for certain products, such as pharmaceuticals and utilities. Businesses need to comply with these regulations when setting prices.
  5. Customer perception: Customers’ perception of the product’s value also affects the price. If customers believe the product is valuable, they are more likely to pay a higher price.

Also Read: What Is Product Management? – Strategic Role, Process, And More