A pricing strategy is a policy which firms embrace to ascertain what it will charge for its products and services. There are several pricing strategies that a firm can take on and process is aided by several factors. Among them include; the current market conditions, underlying competitive advantage, and, in several instances, government regulatory constraints on pricing. Markup pricing and competition-based pricing are two of the various policies used to price products.
Comparing and Contrasting Markup and Competition-Based Pricing Policies
Markup pricing is the most common strategy used by firms. Prices are determined by computing the cost of production of a product and adding a certain margin to it. On the other hand, other organizations use the competition based pricing strategy. This one, unlike the markup pricing, prices goods which are contingent to competitors in the market. Both markup and competition-based pricing game plans, at some point, can be changed depending on the immediate objectives of a firm. This mostly happens when a firm wants to propel rapid entry into a market or introduce a new product into an existing market. In this case, firms take on the promotional pricing technique. It involves setting prices below the market price or even lower than the cost price to create a sturdy customer base (Davcik & Sharma, 2015).
Factors Considered During Product Pricing
When deciding on the price of a commodity, several factors apply. First, there is the cost: one has to be financially informed. Calculations of the price of production, all fixed and direct costs are included. Then, one should consider consumers: their preferences, levels of income, and their propensity to spend on the products. The geographical location of the business, the competitors, and the desired profits are also contemplated.
Effects of Prices on the Market Policy
A firm should set a price that not only maximizes sales but also profits. They should consider how they are perceived in the market. For example, Potter sells high-end canvas at low prices. That does not necessarily mean that the goods are of cheap quality. He is just being transparent to the market.
