Establishing a pricing strategy is an important step in organizing the work of the whole enterprise, and in the case of the Vanda-Laye Corporation, this task requires the coordination of different related activities. In order to determine the optimal course of the company and its profits, it is necessary to define the relationships between cost and revenue as a valuable criterion for calculating potential working results.
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As one of the strategies, the utility theory may be implemented to calculate the consequences of the measures taken and the reasonableness of establishing a specific pricing category for the goods distributed. Also, the indicators of supply and demand are to be taken into account in order to avoid a crisis and the excess of production. Applying the utility theory and determining the relationships between cost and revenue are essential procedures at the stage of developing a pricing strategy.
Utility Theory Application
When developing a pricing strategy for the Vanda-Laye Corporation, the application of an appropriate business concept is necessary to avoid risks and obtain the desired profit. As such a methodology, the utility theory may be introduced. According to Rui, Liu, and Whinston (2017), this economic approach allows the party to make a decision to gain the desired result of the changes while avoiding the threat of financial bankruptcy.
To assess the success of a particular pricing strategy, it is essential to take into account those indicators that are planned over a certain period. In case financial calculations prove that the cost of goods in a certain range will provide an opportunity to obtain the necessary revenue without any damage to the assets of the enterprise, the considered course of work will justify its effectiveness. Therefore, the utility theory is the mechanism that reduces the risk of possible losses.
Information to Assess the Company’s Cost and Revenue Relationships
In order to assess cost and revenue relationships, several factors need to be taken into account, and one of them is the level of customization. As Wang, Lee, Fang, and Ma (2017) note, this indicator determines the number of potential consumers of a product, its relevance in the market, and, as a result, possible costs for its production. Another evaluation criterion is operations management within the company under consideration. According to Wang et al. (2017), this factor is the coordinating mechanism that determines which course the leadership of a corporation takes and which resources it has. Competent management policies may allow determining cost and revenue relationships based on the analysis of current performance indicators and future development prospects.
Impact of Supply and Demand on the Company’s Pricing Strategy
The evaluation of such aspects of business activity as supply and demand is an important procedure that allows obtaining relevant information about consumer interest and, thereby, establishing the correct pricing strategy. Data about how much customers are willing to pay for a particular product could enable the company to calculate the production volume and deliver as many goods to the market as required according to demand.
As Tate, Mollenkopf, Stank, and Da Silva (2015) argue, “bringing the supply and demand sides of an enterprise together can represent a significant opportunity for efficiency and value creation” (p. 16). Thus, when having information concerning the interests of consumers, it is possible to avoid excess production and concentrate forces on the delivery of the volume of the required goods at the desired price.
The utility theory introduced to calculate the pricing strategy of the enterprise may be as essential as determining the relationships between cost and revenue. The level of customization and the peculiarities of operations managements are those criteria that should be taken into account when assessing the production profitability of the Vanda-Laye Corporation. Supply and demand indicators are the criteria that influence the company’s pricing strategy and help to define customer’s interests.
Rui, H., Liu, D., & Whinston, A. (2017). Allocation and pricing of substitutable goods: Theory and algorithm. Production and Operations Management, 26(5), 767-783. Web.
Tate, W. L., Mollenkopf, D., Stank, T., & Da Silva, A. L. (2015). Integrating supply and demand. MIT Sloan Management Review, 56(4), 16-19.
Wang, Y., Lee, J., Fang, E., & Ma, S. (2017). Project customization and the supplier revenue-cost dilemmas: The critical roles of supplier-customer coordination. Journal of Marketing, 81(1), 136-154. Web.