Pricing is part of the overall marketing strategy that plays tremendously vital role in the company’s success. Good price decision-making helps in boosting up the profitability and or market share of a product. Pricing factors in decision-making can be discussed as either external or internal factors.
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Pricing Factors in Decision Making
Customer Value, Relative to Competitive Offerings
This is an external factor affecting pricing decisions. In setting prices as a Bubba’s House of Pork Rinds proprietor, it is important to calculate all the differentiating features and benefits of its product or service as a summation package.
For instance, the management can look at the customer demand and consider important factors such as comparing its products to those of the major competitors, and whether the firm has any competitive advantages vital to customers that they may be willing to pay more to get (Young and Keat, 2006).
Differences between market and industrial segments
In market segmentation, majority of businesses generate individual schemes of segmentation as a requirement to meet their business strategies (Young and Keat, 2006). There is some sense of similarity between these two segmentations, segmenting industrial markets appears different and more demanding due to its greater complexity in the buying processes, buying behavior and the bulkiness of industrial products.
Prices in major industries are resulting to price differentiation among customer groups, which significance affects the profit margin. In order to make profits, a wholesaler or distributor that purchases pork rinds products in bulk requires lower prices compared to that of the retailer.
They should maintain the end user price at almost equal level as when the manufacturer directly sells to a retailer. In short, Bubba’s House of Pork Rinds should consider the trends of its major buyers, if most of them are bulk buyers who resell the pork rinds, then, in order to maintain the prices to the end user, the firm must lower its prices.
Expected Competitive Reactions
A number of companies make drastic pricing decisions without considering several factors, a tend that might lead to price wars from competitors. Bubba’s House of Pork Rinds needs to consider the competitor’s (Don’s Doritos Drive-in and Paul’s Palace of Pringles) cost structure, their past pricing trends, product demand, the product’s relationship to others in the competitor’s line, and their capacity utilization.
By considering all or most of these factors, Bubba’s House of Pork Rinds can come up with a competitive price and still avoid potential price wars (Daly, 2002).
Market positioning has a great impact on pricing strategy. If a firm’s customer value, demand, competition, and real costs factors are accurately evaluated, then the resulting strategic price levels should maximize profits. Bubba’s House of Pork Rinds’ proprietor should weigh all these factors against its marketing objectives.
There is also the need to evaluate how a price change affects the firm’s other products, the necessity for short-term profits as opposed to long-term market position, long-term consumer behavior, and the impact of profits management within the entire business operation.
Maximum attention must be observed in order to put these four factors into consideration when making pricing decisions. The pricing objective adopted must cater for the current and future objectives of the firm (Baker, 2006). A consideration of these factors will help it to make better and more fact-based decisions about the toughest marketing decision for both current and future market trends.
Baker, R. J. (2006). Pricing on purpose: creating and capturing value. NJ: John Wiley & Sons, Inc.
Daly, J. L. (2002). Pricing for profitability: activity-based pricing for competitive advantage. NY: John Wiley & Sons, Inc.
Young, P. K. Y., and Keat, P. G. (2006). Managerial Economics: Economic Tools for Today’s Decision Makers, 6th edition. NJ: Pearson Prentice Hall.