Application of Pricing Strategies at Workplace Introduction Pricing strategies play a key role in influencing consumers’ purchasing behavior. It is an important element of marketing that determines sales and the going -on concern of the company. Research shows that consumers perceive products differently depending on their prices. Pricing is a difficult assignment because setting high prices may lead to low sales while a low price can misinform consumers about the product features like quality(Musonera, Business, & New, 1999, p. 1). Price in simple terms is the value obtained from exchanging a good or service.
The amount a consumer is willing and able to pay for an item determines the value of the item. Several factors are useful when setting prices of commodities. Sales persons and marketers have found it useful for instance to classify goods and services because each category demands a unique competitive strategy (Horngren, Charles T., Datar Srikant, 2013). This paper will specifically analyze application of pricing strategies at workplaces. Literature Review According to Miao, a consumer will buy a product or service if the commodity’s market price is equal to his/her reference price.
Thus, a consumer’s reference price determines whether a consumer will accept the market price or not. He argued that the consumer’s behavior would not necessarily follow the traditional demand function, which states that holding all factors constant, only price affects the quantity demanded. The reason was that a consumer would adjust his/her reference price or utility function as soon as they learn of new price information. Consumer’s purchase behavior depended on current market prices and the rate at which such information spreads (CHEN, 1999, p.
3). . People have different tastes and preferences and consequently react in diverse ways to the same product/service. Musonera argued that the demographic structure of the region is instrumental in setting prices of goods and services. The young in particular were becoming a major segment. According to Musonera, social factors such as culture, language, level of education and religion were fundamental in setting appropriate prices. Other criteria that determine the price of a commodity include its quality and product’s performance in the market(Musonera et al. , 1999, p.
6). There have been several pricing strategies from time to time. These price strategies are dynamic and vary from time to time depending on economic environment and other social factors such as culture and religion. This paper will concentrate on price strategies applied in workplaces. Methodology A series of questions facilitated the study of pricing strategies.
The target groups of this research were employees in a manufacturing company in St. Louis City. Half of the respondents were male, and the rest were female. The respondent’s level of education was as follows: 61.1% had a bachelor’s degree, 27.8% masters, 5.6% doctorate and the rest had other level of education. The positions held by respondents the above was 5.6% chief controller officers, 11.1 % controllers, cost accountants 11.1% and other positions were 61.1%. Data obtained from the study was analyzed, and interpretations made and finally a conclusion drawn on pricing strategies at workplace. Pricing Theory Pricing as a marketing function requires considerable input from the various departments in an organization.
Accountants and financial analysts play a significant role in providing cost and sales data, which are important in decision-making. Computer experts, on the other hand, maintain an updated market information system that provides accurate information important for pricing. Managers ought to understand the significance of pricing and the information required from different departments in an organization.
There are two viewpoints to pricing, Economic and Cost-based. Economic theory provides the overall viewpoint of pricing while cost-based is a practical approach to pricing (Horngren, Charles T., Datar Srikant, 2013). Economic Theory (Market-Based Approach) The objective of economic theory is to ensure that the firm maximizes on profits. According to this theory, the price is set at the equilibrium point i. e. the point at which quantity demanded is equal to the quantity supplied. A graphical representation, demand curve, reflects the quantity of goods demanded at different price levels.
The amount of goods supplied at corresponding prices shows on a supply curve. The point at which these two curves interest is what referred to as the equilibrium point is. The price at the equilibrium level is thus the economic price of a commodity (Horngren, Charles T., Datar Srikant, 2013). Cost-Based Approach The economic price is oft difficult to determine due to limited market information. The cost based approach of pricing takes into account and sums up all the costs associated with the production of a commodity.
These costs include the production, selling and distribution expenses, transportation and other indirect fixed costs. Addition of a profit margin to the overall standard unit cost determines the final price of a commodity (Horngren, Charles T., Datar Srikant, 2013) Pricing Strategies Setting the price of the product higher than homogenous goods and eventually, lowering the price is a pricing strategy called skimming price. This pricing strategy is effective in situations where market segmenting applies. The advantage of skimming pricing strategy is that a business rapidly recovers its costs through high profits.
However, profits accrued in this early stage attract competition and in the long run period, the prices go down. Penetration pricing is another pricing approach that introduces a product into the market at a comparatively low price than similar products with the aim of securing large market share. Product-line pricing involves setting restricted on a number of commodities as opposed to individual pricing. Product line pricing approach is most prevalent among retailers. (Horngren, Charles T., Datar Srikant, 2013).
. Results s Discussion The results indicate that consumers and competing companies have a high impact on prices set on goods and services. Approximately 72% of the respondents interviewed acknowledged the fact that companies and consumers influence commodity prices largely. Market based and full price models were the popular pricing models in the respective order.
Customers and competitors had the same impact on prices of commodities. Consumer interviews have a high impact on price setting compared to consumer surveys. Conclusion Pricing is an uphill task that marketers encounter. It involves ascertaining the cost of production, distributing the product and setting a profit margin. Effective pricing systems take into account costs, market demand and competition. There are many pricing strategies. Each pricing strategy is appropriate in its own circumstances, and none is superior to the other.
Careful considerations, therefore, ensures the selection of the most appropriate strategy (Musonera et al. , 1999). Price of a commodity is subject to myriad factors. Consumer’s power of influence is one such factor. Customers can thus determine the price of a commodity. Excessive demand of goods and services will cause prices of goods and services to increase. An excess supply of goods and services on the contrary will cause a decline in commodity prices.
Changes in consumer tastes and preferences, population demography and amount of disposable income will eventually influence the price of goods and services. References CHEN, M. (1999). 100448001.pdf. Asia-Pacific Journal of Operational Research, 16, 139–154. Musonera, E., Business, C., & New, E. (1999). An Examination of Factors that Affect Pricing Decisions for Export Markets. Horngren, Charles T., Datar Srikant, M. R. (2013). Product and Pricing Strategies. In Cost Accounting (14th ed. , pp. 1–26). .