Pricing Decision Essay Example for Free

Pricing Decision Essay Companies in their endeavor to succeed in the highly competitive and dynamic market are now considering a clear focus on their marketing strategies. This is in order that they may remain relevant in the fast changing business environment, market conditions and consumer preferences. It is important that a company considers the effects of the changes in the business environment including price variations initiated by its competitors This is best done by first analyzing the prices offered by the competitors visa vie the company’s cost structure and the competitor’s chances to change in response to the company’s new price offers (Kotler 2003. p 66). Pricing Strategies The company needs to figure out the best strategy to implement in order to achieve the optimum prices for its products. To initiate cost-cutting with a view to improve on the profitability of the company the company must have an understanding of the type of cost that it needs to manage. This will be to a large extent influenced by its style of management, sources of professional advice, the broader vision of the company’s goals, communication strategy, and company’s capitalization in relation to debt-equity ratio and the cost of borrowing (Sherman 2007. p 3-4). The company also needs to understand the several types of costs that it incurs. The various types of costs are research and development costs, the overheads and administrative costs, human capital costs including health care costs, salaries and employee benefits, infrastructure and system costs, advertising and promotional costs, fixed and variable costs, and debt-servicing costs. The bottom line is to thoroughly examine each of these cost categories and weigh their importance to the company’s business operations, consider more efficient available alternatives, and the possible implications of the cost reduction strategy (Sherman 2007. p5 9). A company such as Wal-Mart that has for years been ahead of its competitors by offering the lowest prices for its goods. Wal-Mart is able to manage favorable price cuts by implementing price cut strategies such as endeavoring to reduce its costs by pursuing a tax reduction strategy. This has been through its investments in Real Estate Investment Trusts (REITs) in order to exploit tax loopholes and avoid some of the taxes levied in particular states (Moore 2007. p. 2). Having accomplished the above cost reduction strategy, the company may the come up with appropriate pricing for its products. This is done by first understanding pricing methods. There are six pricing methods that would lead to an informed decision in fixing prices. These are markup pricing method, the target return pricing method, perceived value method of pricing, value based pricing, the going-rate method of pricing and the sealed-bid method of pricing (Kotler 2003. p 66). Implications of Price Cuts and Conclusion The price of the product or service is a major factor that influences customer’s purchase decision is the marketing mix. A combination of the cost reduction strategy and an appropriate pricing strategy is more likely to benefit the company and enable it attain a competitive advantage over its competitors. By adopting market responsive cost cutting strategies in the communication industry, companies in turn helped create a better way of life whereby customers are now able to communicate more often and at lower prices Salazar 2007. p. 1). This translates to increased profits to the service providers as they are able to sell more units than before. References Kotler, P. (2003). Marketing Management. 11th Ed. New Jersey: Prentice Hall. Moore, M. (2007). Taxing Strategies: Always Cutting Prices, Wal-Mart Attempts to Rollback Taxes. Retrieved March 8, 2009 from http://walmartwatch. com/img/blog/NIMSP_tax_strategies. pdf Salazar, L. C. Cost Cutting Strategies at the Bottom of the Pyramid. Retrieved March 8, 2009 from http://www. lirneasia. net/wp-content/uploads/2007/03/2-lcs-shoestrings-sing-28feb07. pps Sherman, A. J. (2007). Strategies for Cutting Costs and Improving Profitability. Retrieved March 8, 2009 from http://www. sbecouncil. org/uploads/PPT%20Cost%20Cutting%20for%20Growth%20and%20Profitability. ppt