The pricing decision Essay Example | Topics and Well Written Essays - 2000 words

The pricing decision - Essay Example These situations include new product promotion, test marketing, countering competition or predatory pricing, promotion of associated products and cost plus contracts. Fazlzadeh, Mohammadi & Sepehrfar (2011, p. 66) state â€Å"Setting optimal prices, however, is a complex problem in general and is particularly challenging in industrial or B2B market settings, where purchase prices of products and services typically vary from one customer account to another as prices are negotiated and modified from list prices in the course of the purchase process†. Based on the purpose, marginal, differential or total costing method would be adopted in pricing. The pricing strategies also vary according to the type of market such as monopoly, monopolistic or oligopoly. The strategy of skimming the market or the policy of ‘what the traffic will bear’ in the case of products backed up with IPRs are not uncommon in the market place. Also, pricing strategy for the same product by the same company varies based on the usage or purpose. For instance LPG cylinder used for commercial purposes could be costlier than the LPG used for domestic purposes. This paper seeks to discuss about various strategies adopted by businesses in pricing decisions. Why pricing decision is important? The strategic importance of pricing is many fold. Promotion Strategies (2010) states, â€Å"The  marketing promotion mix  is the use of the 4 P's. These are Product, Price, Place, and Promotion.  This system first appeared in 1949 and was developed by Philip Kotler†. The pricing is an important area in the management decision making, because profitability of any business hinges on right price for the product for making the most out of the prevailing economic situation and developments in technology, internet and telecommunications in the context of the business. Bayati & Makui (2011, p. 371) observe â€Å"Making an appropriate pricing and marketing strategy is a crucial managem ent issue in E-commerce†. The appropriate pricing strategy is adopted after analyzing the factors related to various pricing situations. Evidence – Chevrolet’s Spark Chevrolet has introduced the model ‘Spark’ for marketing in the developing countries, in the small car segment, which is not very popular in US or other developed countries. The price of the car is fixed at INR. 279,000 in India which works out to just US$ 6200 approximately. In the case of new products, in spite of the extensive market research on potential demand for the product, adopting a right pricing strategy is important to be competitive in the market. As it is a question of creating demand for the new product, pricing is the key to success in influencing the consumers’ decisions. Price sensitivity of the consumers is an important variable in the decision making process, and the proper positioning of the product in the market place and its rational pricing would stimulate demand for the product from the target consumers. The strategy should also ensure that the competitors are not tempted to introduce similar products in view of the attractive margin. This philosophy aims at sustainable growth in the long run. Therefore, the prices are fixed with a reasonable margin and at the same time not tempting the competitors to rush into this segment to spoil the first mover advantage. Argument for fixing prices at a lower level The pricing decision in this case is taken in the backdrop of uncertainties about the