Essay, Research Paper: Princing

Proper pricing of products, services can enhance profits Pricing of products and services is one of the tools which is used by an enterprise for promoting its sales. For a small enterprise, the immediate objective in making pricing decisions is to recover costs with incentives to stay in the business. This is true for a manufacturer, wholesaler as well as a retailer. Although they operate in different working environment and market conditions the basic components of pricing decisions for each of them remains the same viz. cost of goods produced or sold plus operating expenses plus net profit to be recovered from sales. The principle of supply and demand explains the existence of monopoly or competition, consumers' preferences and elasticity of consumers. But in reality we find that apart from buyers and sellers, there are several other parties which contribute or influence the pricing process viz. persons responsible for sales promotion, the ultimate customers or end-users for products and services; rival sellers or producers, potential rivals in a competitivesituation, middleman engaged in promoting and selling products and services; suppliers of raw materials and other goods; the government, investors-shareholders, employees and the society in general. All these parties passively or actively influence the pricing policy and decisions for all types of products and services. In small enterprises, it is the entrepreneur or the owner-manager who sets pricing policies and takes pricing decisions in contrast to the medium and large-scale manufacturing or wholesale business where the top management lays down price policies and sales managers take pricing decision depending on the market situation. Under these circumstances, the main drawback a small entrepreneur faces is his inability to get quick and accurate information about the market conditions and other related matter.
Market experts feel that a small enterprise may face different market situations ranging from competition to monopoly. Whatever may be the case it has to follow certain steps for takingpricing decisions to combat any particular market situation. These steps may include the following viz: (1) Selection of market target, fixing market segments, insulating competition and developing market for complementary products; (2) creating a brand image for justifying low or high prices to be charged for the product and services; (3) deciding composition of marketing mix viz. role of advertisement in influencing the customers and prices of the products; (4) selection of price strategy with reference to long-term objectives of the price; (5) evolving a price policy viz. whether to set mark-up and lead the market price/follow market leaders' price/ adopt price line suggested by wholesalers or distributors/ follow discriminatory pricing or uniform pricing etc.; and (6) follow flexibility and adaptability in the pricing system. All these steps are self-explanatory and an entrepreneur can follow these without any difficulty for setting prices for any commodity. Notwithstanding all this,there are certain commodities or stages of production where the entrepreneur will have to put in extra effort. For example, in the case of durable products/non-durable or perishable products one has to take pricing decisions taking into consideration different aspects noted below: It is necessary to take pricing decisions to estimate the demand pattern and cost behaviour of the product so that the target rate of return can be planned. Having made econometric estimates, the maximum profit for the product can be projected. Profit can be forecast on the basis of such a price after taking into consideration the short-run cost behaviour and demand schedule. Entrepreneurs who enjoy a monopolistic situation will have to guard their interest in the long run and make efforts to prohibit the entry of potential competitors by adjusting the present price to future sales.