Pricing is a process of defining the value that a manufacturer receives when exchanging services and goods. The pricing method is applie to suitably adjusting 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 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 changing customer preferences and tastes. Therefore, when determining the cost of a product, all variables and fixed costs must be consider. Once the survival phase is over, the company can increase 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.
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.
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 phone electronic devices are some examples.
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.
The pricing method is divided into two parts:
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.
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 is evaluate based on the total costs (fix and variable costs).
This is where the fixed number or percentage of a product’s total cost is add to the product’s final price to arrive at a product’s retail price.
The company sets the cost of the product to achieve the return on investment.
In this category, it is determine base 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.
Here the company produces a high-quality product but at a low price.
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.
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