The Pros And Cons Of Pricing Strategy

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 …show more content…
Pre-emptive pricing is used to discourage competitive market entry, while allowing a company to hold a strong position in a medium market (Paley, 2006). In pre-emptive pricing the company will have sufficient coverage in the market and sustained customer loyalty, and it requires close contact with the field and special attention is needed to competitors in acts of pricing. Although the cost of equipment was initially high, causing the initial sales to be manufactured at a higher cost than what they are sold the company knows that once it reaches its break-even point (setting the price to break even on the costs of making and marketing a product), the equipment will be paid off and the rest of the sales will be made with larger