Pricing Strategy Is A Method Adopted By A Business Essay

1729 Words Jun 26th, 2016 null Page
Pricing strategy is a method adopted by a business to set the desired selling price. It typically depends on the firm’s average costs, and on the customer’s perceived market value of the product in comparison to their perceived value of the competitors’ products. Different pricing methods place varying degree of emphasis on selection, estimation, and evaluation of costs, comparative analysis, and market situation (Business Dictionary, 2016). Understanding and getting pricing right contributes directly to the success or failure of a business. The pricing strategy or price planning relates to internal forces (cost and marketing objectives) and external forces (consumer demand, competition and market trends) (D’Antonio, 2012). The price principle refers to how much consumers pay for the product, and it is evaluated in terms of how the price maximizes profit for the company, what consumers are willing to pay to pay for a product. To get a good starting point of what the minimum price for a product is they should use the formula provided by D’Antonio to determine the price (price = (unit variable cost + unit allocation to fixed costs) * (1 + mark-up)). Another approach is cost plus calculation to determine the desired profit margin, meaning a company will take the total cost and divide it by one minus the desired margin to determine the price (D’Antonio, 2012). To assist a company in determining the best ways to choose the appropriate pricing strategy when setting pricing for…

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