PART 1: PRICING STRATEGY Briefly describe pricing for your example of product or
ID: 461139 • Letter: P
Question
PART 1: PRICING STRATEGY
Briefly describe pricing for your example of product or service. How does this compare to competitors, assuming competitors are at or near break-even point with their pricing? Analyze pricing alternatives and make recommendations about pricing going forward based on the following:
How sensitive are your customers to changes in price?
What revenue you need to break even and achieve profitability?
What does the price says about your product in terms of value, quality, prestige, etc.?
Explanation / Answer
Pricing strategy is method which is used by the companies to price their products or services .Several large or amall companies base the price of their products and services on production ,labor and advertising expenses and then add certain mount so they can make profit. For eexample : a small internet software distributor may set a low price for its products and subsequently amail customers with additional software product offers every month.A small company will work harder inorder to serve their customers to build brand loyality among them.
When competitors are at or near break even point ,this means that the competitor companyis focussing on penetrating the market by keeping the price of their product in such a manner that the company is neither in profit and nir in loss.Break even point has the simplest pricing formula i.e. FIXED COST + VARIABLE COST =TOTAL COST/BREAK EVEN PRICE.Thus ,the important facor to maintain break even prices is to determine exact variable and fixed costs..The application of break even pricing comes when making business and marketing plans as well as when trying to penetrate a new market.For example,If you descide to start your busines ,your main goal is going to make profitable and sustainable.But for every business in initial stage of development takes time to build profits .In these cases the best option for you is to reach even point where you are in no profit no loss position.Profit is the most desirable goal but not losing money and to be on zero loss can also be an alternative solution rather than getting negative results on your investment.
The pricing alternatives has various facors that influnece how a consumer perceives a given price and how price sesitive is likely to be with respect to different purchase desicion :
Reference price effect:Buyer's price sensitivity for a given product increses the higher the product price relative to perceived alternatives .Perceived alternatives can vary by buyer segment ,by ocassion ,and other factors.
Switching cost effect : the higher the product specific investment a buyer must make to switch suppliers ,the less price sensitive taht buyer is when choosing between alternatives.
Cost plus pricing:
in thsi ,a company first determine its break even price for the product.This is done by xalculating all costs involved in production such as raw materials used in it tranpotation etc.,marketing and distribution of products .Then markup ie set for each unit ,based on profit the company needs to mahe ,its sales obkectives and the price it beleives customers will pay.
There are various pricing alternatives as following:
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