Answer to Question #246849 in Marketing for Pein

Question

Which pricing method (cost,demand,competition,profit-based) would you recommend for the following items to be sold in other countries? Briefly defend your reasoning.

* Tennis balls by a manufacturer in the Philippines.

* Mobile phones service in Chile

* Solar panels in Canada

Answer 1

Discussion

Pricing is defined as the amount of money that a business/company charges for their products, but understanding it requires much more than a simple definition. Pricing are indicators to one’s potential customers about how much a company/organization values their brand, product, and customers. It's one of the first things that can push a customer towards, or away from, buying a product. As such, it should be calculated with certainty.

Too many businesses set their pricing without putting much thought into it. This is a mistake causing them to leave money on the table from the beginning. Taking the time to get the best product pricing right can act as a powerful growth lever. If businesses optimize their pricing strategy so that more people are paying a higher amount, they will end up with significantly more revenue than a business that treats pricing more passively. This sounds obvious, but it's rare for businesses to put much effort into finding the best pricing strategy. Choosing the pricing strategy for a business requires research, calculation, and a good amount of thought. Simply guessing may put one out of business.

Competitive pricing is one of the many pricing strategies. Competitive pricing is the process of selling products or services at the same or a lower price than other competitors. Businesses can also practice competitive pricing by offering more attractive payment terms than their competition.

Competitive pricing requires one to examine the market before they decide how to price their products or services. It requires one to factor production costs into their pricing equation. To practice competitive pricing, determine whether other businesses are asking for the same goods or services, and set prices accordingly.

There are three types competitive pricing namely; Penetration pricing, Promotional pricing and Captive pricing. With competitive pricing, one can tailor strategies to financial objectives. New companies may use penetration pricing to get noticed in the market. Established companies can leverage promotional pricing to boost volume and revenue. Businesses that are intent on increasing sales on core and ancillary products can leverage captive pricing.

Competitive pricing is all about knowing as much as possible about the market and industry peers, from products to pricing and everything in between. The below are steps to conduct a competitive pricing analysis:

• Assess market position. Determine where the organization is in the business life cycle. If it is an established company, well-advertised sales on a monthly or quarterly basis might help the business grow.
• Identify the main competitors. Compile a list of competitors’ strengths and weaknesses. Capitalize on what they lack and learn from what they do well.
• Run the numbers. Use software to create several revenue projections.Observe how adjusting profit margins and sales volume yields results over various time periods.
• Set attainable goals. Introduce known costs to the business model. Identify the volume and pricing structures needed to break even as well as the levels where forecasted sales generate profit.
• Measure results. Monitoring sales activity will allow the business to remain agile. One can adjust pricing on the fly if revenue figures don’t meet expected results.

Competitive pricing can be cost-effective and easy to implement, especially for small businesses that don’t have the resources to perform extensive market analyses. By pricing products, the same as larger entities, they are benefiting from the competitive intelligence gathered and market research performed by industry leaders.

One can easily experiment with incremental price cuts or increases once established base prices that correspond with competitors’. By tweaking prices within industry norms, one will assume less risk when exploring whether price cuts or hikes will boost sales and revenue.

By laying the foundation with competition-based pricing, one can come to understand the nuances of their market and explore more complex pricing methods. With the assistance of software solutions, one can analyse and update price data continuously. This is a big step toward harnessing the power of dynamic pricing models driven by supply and demand.

Reference

Avlonitis, G. J., & Indounas, K. A. (2005). Pricing objectives and pricing methods in the services sector. Journal of services marketing.