Based on your experience or readings, discuss the different types of pricing str

Question

Based on your experience or readings, discuss the different types of pricing strategies and methodologies confronted by Purchasing and Supply Management professionals in the acquisition of goods and services – in particular cost- and market-based pricing, value-based pricing, penetration and predatory pricing, life cycle pricing, and segmented pricing.

Differentiate between customer-driven and competition-driven pricing and their affect on the buying organization’s willingness and ability to purchase a particular good or service.

What is the role of Purchasing and Supply Management professionals as “gatekeepers” who control the flow of information and external contacts with suppliers?

Are these professionals considered decision makers with respect to product and supplier selection as well as price acceptance?

Explanation / Answer

Businesses have their own methodologies of pricing their products and services which will give an overall advancement to their growth.The different types of pricing strategies and methodologies confronted by purchasing and supply management professionals in the acquisition of goods and services are

1.Cost based pricing- when a company used cost based pricing the price for the product is set at a percentage above the cost it incurs in the manufacture of the product or to provide the service.It uses cost as its basis for pricing .The floor and the ceiling are the minimum and the maximum prices for a product or service .The company should price the product inbetween the floor and ceiling price.

Value based pricing- In a Value based pricing the company considers the value of the product than its cost.To analyse this the company determines how much money or value its products or service will generate for the customer.

Penetration pricing- This strategy is used to attract customers to new product or services.It is the practise of offering a low price for a product or service during its initial offering so as to attract customers away from competitors.

Predatory pricing is also lowering of price gradually which can happen during a war.It can be seen as an advantage of price competition.

Life cycle pricing- The five stages of product life cycle is development, introduction,growth ,maturity and decline.Price strategies only affect four stages of the product life cycle.When a product is introduced it uses price skimming or market penetration strategy. Then comes its growth. The product life cycle stage is called maturity stage when it grows in a slower pace.

Segmented pricing- When a company sets more than one price for a product without experiencing differences in cost of producing the product is called the segmented pricing .

A method of pricing in which the seller makes a decision based on the prices of its competition is called as competition driven pricing. It focuses on a price that will achieve a most profitable market share..It is to eliminate the competition in the market.A customer driven pricing is based on the justification of the customer paying for the product.. It reflects the value of a product from the customers point of view.These two pricing strategies are used to justify purchase decisions and are at a level to convince the customer to benefit from the transaction.

The role of purchasing and supply management professionals as gatekeepers control the flow of information and external contacts with suppliers are their major role .There is a general saying that companies exist by selling but makes profit only by purchasing..It is the responsibility of purchasing and supply managers to ensure the effective management of a firms supplies. They search ,select contract and manage the process of purchase and supply.Their main resources are the information contacts with suppliers that determine their various strategies..The purchasing department also include strategy planning and operative procurement..They are also considered as decision makers in product and supplier selection thereby indirectly affecting the price strategies.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.