Pricing policy is a set of rules, principles and methods in accordance with which an enterprise determines the cost of its products or services.
Pricing policy consists of two main components, namely strategy and tactics regarding pricing. Speaking about the first element, it is worth noting that it implies long-term positioning of the product in market conditions. Here it is important to decide on the price segment, as well as choose the methodology that will be used to determine the cost. Pricing tactics involve developing short-term measures that will ensure effective sales at this specific period of time.
Pricing policy must be constantly adjusted depending on changes in the market situation. This is not just a method of making a profit, but also a fairly strong argument in the process of competition. The price must be set in such a way that it simultaneously satisfies the consumer and provides a decent level of profit to the entrepreneur.
The final cost of a product is influenced by many factors, which lie both in external and internal internal environment enterprises. The essence of the pricing policy consists of the following points:
The objectives of the pricing policy can be formulated as follows:
Pricing policy is a rather complex concept. An analysis of its effectiveness at an enterprise should consist of the following points:
The pricing policy of an enterprise can be developed on the basis of one of two approaches: cost or value. As the name of the first implies, it is based on production and sales costs. To begin with, the costs of manufacturing products are calculated. At the next stage, it is worth assessing what the cost of advertising events will be, as well as transporting the goods to the intermediate and final consumers. It is definitely worth studying the market situation, as well as the pricing policies of competitors. Once all the previous factors have been taken into account, the final figure can be adjusted based on how much value the product provides to the buyer.
The value approach does not imply measures to maximize sales. The final cost of the goods is determined according to the opposite scheme. To begin with, marketers study consumer behavior, as well as the value that a particular product represents to them. Next, it is worth assessing the general situation on the market, as well as determining the maximum amount that the consumer is willing to pay. If the established price completely covers production costs, then you can start selling, but otherwise, the final figure will have to be increased proportionally.
The pricing policy of an enterprise can be formed based on one of the following strategies:
Control pricing policy includes a number of mandatory tasks:
Pricing policy is one of key points in the work of the enterprise, and therefore you should be extremely careful when drafting it. Sometimes management and marketers make some mistakes that can negatively affect the financial results of the organization. So, you need to work closely enough with the production department so as not to miss a single cost item that arises during the manufacture of the product. Otherwise, the operation of the enterprise risks being ineffective.
Before launching products for sale, you need to conduct a thorough marketing research on the subject of what value it has for the consumer. If you neglect this event, there is a risk of setting an unreasonably low price. Thus, we can talk about lost profits, which could contribute to further expansion of production.
Don't underestimate competitors and their pricing policies. It is important to analyze several scenarios that determine how your opponents will react to your actions. Otherwise, your pricing policy may be ineffective and lose the competition.
An organization's pricing policy largely depends on how the company positions itself and its product on the market. In this regard, a number of categories can be distinguished:
Marketers distinguish two main types of prices for goods and services:
A fairly serious marketing tool is a flexible pricing policy. It involves the installation of a system of discounts, which imply a certain reduction in the selling price of goods. This tool is used to attract buyers, conquer a certain market segment, or maximize sales of goods in a specific period of time. Often such price reductions are quite short-term.
By setting a discount, the manufacturer does not work to its detriment, because before that the price is slightly inflated. So, speaking about seasonal sales, it is worth saying that they are fully compensated by the profit received at the beginning of the sales period. When setting the size of markups and discounts, an entrepreneur must be guided not only by his own interests (the base price), but also by the interests of the buyer, which are expressed in a fair price. Otherwise, these activities will not be successful.
Price is one of the most common and effective tools competition. This process can be carried out in two directions:
The pricing policy of an enterprise can be aimed at covering as large a share of the market as possible, attracting completely different categories of buyers. However, each of them pays a different price. This phenomenon in economics is called price discrimination. An example would be a discount program used by many well-known brands or retail chains.
The main goal of pricing policy in marketing- maximize profit for a given sales volume per unit of time. When developing a pricing policy, each enterprise independently determines for itself the tasks to be solved, which may be diametrically opposed, for example:
revenue maximization, when revenue is more important than profit. For example, for seasonal goods or goods with a limited shelf life;
price maximization, when the image of the product is more important than sales volumes. For example, to artificially limit demand due to the inability to satisfy it (demarketing);
maximizing sales volumes when market retention is more important than profit. For example, to retain or conquer a market;
increased competitiveness when sales volume is determined by price. For example, when selling goods with high elasticity of demand;
ensuring a given profitability, when maintaining profitability comes first. For example, in the production and sale of consumer goods.
Cost-based pricing policy (setting prices by adding target profits to calculated production costs; setting prices with reimbursement of production costs). This is the easiest way to set your price.
Let's assume that the cost per unit of goods (production costs) is 100 rubles. The manufacturer intends to set a markup (planned profit) of 20% of the cost of the product. The final price of the product is calculated as follows:
This method is acceptable only if the price found with its help allows you to achieve the expected sales volume. This method, however, remains popular for a number of reasons.
First, this method does not require constant price adjustments in response to changes in demand.
Second, when all companies in an industry use this pricing method, prices are set at approximately the same level and price competition is minimized.
High price policy (price level policy; skimming policy). A pricing strategy that involves setting a high initial price for new product to obtain maximum profits from all market segments willing to pay the required price; provides lower sales volume with more income from every sale.
Companies entering the market with new products often set high prices for them in order to skim off profits layer by layer. The advantages of such a pricing policy include:
creating an image (image) of a quality product for the buyer as a result of a high initial price, which makes it easier to sell in the future when the price decreases;
ensuring a sufficiently large profit margin at relatively high costs in the initial period of product release;
Facilitating changes in price levels, since buyers perceive price reductions more favorably than price increases.
The main disadvantages of this pricing policy are that its implementation is usually limited in time. A high price level encourages competitors to quickly create similar products or their substitutes. Therefore, an important task is to determine the moment when it is necessary to start lowering prices in order to suppress the activity of competitors, stay in the developed market and conquer its new segments.
Market penetration policy (p Breakthrough Politics; low price policy). A pricing strategy that involves setting a relatively low price for a new product to attract the maximum number of buyers and gain a larger market share.
Not all companies start by setting high prices for new products; most turn to to market penetration. In order to quickly and deeply penetrate the market, i.e. quickly attract the maximum number of buyers and gain a large market share, they set a relatively low price for the new product. A company using such prices takes a certain risk, expecting that the growth in sales volume and income will cover the loss of profit due to a decrease in the price per unit of goods. This type of pricing policy is available for large firms with large production volumes.
To set low prices, the following conditions are necessary:
the market should be highly price sensitive, then a low price will lead to increased sales;
with an increase in sales volumes, production and sales costs should decrease;
the price must be so low that the company can avoid competition, otherwise the price advantage will be short-lived.
Market segmentation policy (differentiated pricing policy; differentiated pricing). A type of pricing in which a product is sold at several different prices without taking into account differences in costs.
Differential pricing takes several forms. Price differentiation by type of consumer means that different categories of consumers pay different prices for the same product or service depending on their financial situation. Losses or shortfalls in profit from selling goods at low prices to less wealthy buyers are compensated by selling them at high prices to buyers whose level of wealth allows this. Museums, for example, give discounts to students and pensioners.
At price differentiationby type of goods Different product variants are priced differently, but the difference is not based on differences in costs.
Price differentiation by location means that a company charges different prices for the same product in different regions, even if the costs of production and distribution in these regions do not differ. For example, theaters charge different prices for different places based on the public's preferences.
At price differentiationby time prices vary depending on the season, month, day of the week and even time of day. Prices for utility services provided commercial organizations, vary depending on the time of day, and on weekends it is lower than on weekdays. Phone companies offer reduced rates at night, and resorts offer seasonal discounts.
For differential pricing to be effective, certain conditions must exist:
the market must be segmentable, and the segments must differ in level of demand;
consumers of the segment that received a lower price should not be able to resell the product to consumers of other segments where the price is higher;
in the segment to which the company offers a product at a higher price, there should be no competitors who could sell the same product cheaper;
costs associated with segmenting the market and monitoring its condition should not exceed the additional profit received due to the difference in prices for goods in different segments;
Setting differential prices must be legal.
Psychological pricing policy (non-rounded price policy). One of the types of pricing that takes into account not only the economic component, but also the psychological impact of price; price is used as a source of information about the product.
Price is one way to communicate certain information about a product. Thus, many buyers judge the quality of a product primarily by its price. A bottle of perfume that costs 3,000 rubles may contain only 100 rubles worth of perfume, but there are many buyers who are willing to pay these 3,000 rubles, because such a price says a lot.
For example, according to one study examining the relationship between perceptions of price and quality, more expensive cars are perceived by consumers as being of higher quality.
Target rate of return policy is carried out in cases where the market does not offer a fundamentally new product, but some kind of mass product that has been produced for many years, but is modernized from time to time. Prices are set on the basis of profit margins, which are determined based on production costs, prices and sales volumes for a number of recent years, as well as taking into account the competitive position occupied by the company in the market.
Follow-the-leader policy(price leader policy)
Using this approach in pricing new products does not at all imply setting prices for new products of your enterprise in strict accordance with the price level of the leading company on the market. The point here is only to take into account the price policy of the leader in the industry or market. The price of a new product may deviate from the price of the leading company, but only within certain limits. These limits are determined by the qualitative and technical superiority of your company’s products over the products of leading companies on the market. And the fewer differences in your company's new products compared to the majority of products offered in a particular market, the closer the price level for new products is to the “standards” set by the industry leader.
Company pricing policy- the most important part of its general economic policy, ensuring the company’s adaptation to changing economic conditions.
In a market economy, commercial organizations have a real opportunity to pursue their own economic policies, including pricing.
The company's pricing policy as a means of winning over consumers plays an important role even in highly developed European markets. This is especially true for entrepreneurial activity in Russia in conditions of high dynamism of the emerging domestic market, active penetration of foreign competitors into the market, expanding entry opportunities Russian enterprises to the foreign market, maintaining low effective demand of the country's population.
An analysis of the features of the development of pricing processes during the transition of the Russian economy to market conditions showed that as a result of a decrease in inflation, an increase in the level of competition due to an increase in the volume of imports, and a sharp drop in production and consumer demand, the inflation pricing model was practically forced out. The principles accepted in world practice began to be applied economic relations. This requires that Russian firms choose appropriate forms and methods of organizing business activities, mastering a large arsenal of methods and techniques of market pricing.
The company's pricing policy includes a system of pricing market strategies.
Pricing Strategies- a reasonable choice of price (or list of prices) from several options, aimed at achieving maximum (standard) profit for the company in the planning period.
The company's pricing strategy is the most important part marketing policy. The role and place of the company's pricing in the marketing system are presented in Fig. 4.
Pricing strategic choice— selection of pricing strategies based on an assessment of the company’s business priorities.
Pricing strategic choice— selection of pricing strategies based on an assessment of the company’s business priorities. Each company in market conditions has many options for choosing pricing strategies. The list of possible strategies also depends on several factors. To prevent price abuses directed at weak competitors or uninformed buyers, some countries have enacted laws to regulate firms' pricing strategies. These laws prevent competing competitions, overt discrimination against certain categories of industrial buyers, or attempts to manipulate any firms. Certain laws exclude certain pricing options. The general motivation behind the laws is that no strategy should reduce competition unless doing so favors buyers.
In the practice of modern pricing, an extensive system of pricing strategies is used. IN general view it is shown in Fig. 5.
Taking into account the specifics Russian market domestic economists have created a refined scheme for developing pricing strategies (Fig. 6).
Generalization and analysis of experience in developing pricing strategies in countries with developed market relations indicate a serious approach to making pricing decisions. Practice shows that a well-formed pricing strategy is one of the components of a company’s commercial success and ensuring its competitiveness. The success and effectiveness of a pricing strategy depend, in particular, on how well the process of its creation is organized from the very beginning.
For developers of a pricing strategy, it is necessary to draw up schemes and corresponding questionnaire tests.
1. Cost Estimation includes determining the composition and level of incremental costs when sales volumes change, as well as determining production volumes that can affect the size semi-fixed costs.
2. Clarification of the company's financial goals is carried out based on the choice of one of two possible priorities: the minimum profit from the sale of the relevant product (service) or a focus on achieving the highest level of profitability (to maximize the total amount of profit or to make a profit depending on the duration and size of accounts payable).
3. Identification of potential buyers includes identifying factors and assessing the consequences of their influence on the sensitivity of buyers to price levels and predicting the division of buyers into groups (segments).
This work is carried out taking into account the following factors:
4. Clarification of marketing strategy necessary for pricing strategy developers, since the choice of pricing solutions is strictly dependent on the marketing strategy chosen by the company.
5. Identifying Potential Competitors includes the collection and analysis of data in the following areas: identifying firms - the main competitors today and in the future; comparing your prices with the prices of competing firms, determining the main goal of competing firms in the field of pricing; finding advantages and weaknesses the activities of competing firms according to relevant indicators (volume of assortment; specific gain in price; reputation among customers; level of product quality).
1. Financial analysis carried out in order to develop a company's pricing strategy, includes the following areas: determining the specific and total gain of the company from the production (sales) of goods (services) at the existing price; determining the required growth rate of sales volume in the event of a price reduction in order to increase the overall profit of the company; establishing an acceptable level of reduction in sales in the event of a price increase before the firm's total profit decreases to the existing level; calculation of the required growth rate of sales volume in order to compensate for incremental semi-fixed costs caused by the implementation of the analyzed pricing solution; forecasting the required sales volume in order to compensate for incremental semi-fixed costs caused by the implementation of new market of a product being released or the proposed introduction of a new product to the market.
2. Segment analysis market includes forecasting the composition of buyers in different market segments; determining how to draw boundaries between segments so that setting lower prices in one segment does not exclude the possibility of setting higher prices in other segments; developing arguments to avoid accusations of violation current legislation on the protection of the rights of buyers, on the prevention of monopolistic practices in the event of price discrimination.
3. When competition analysis it is necessary to determine the level of sales and profitability of the company, taking into account the likely reaction of competitors, as well as the ability of the company to increase the guarantee of achieving its goals in terms of sales volumes and profitability by focusing efforts on the relevant market segments where sustainable competitive advantage will be achieved with minimal effort.
4. Assessment of external factors should be carried out in two main directions: the influence of inflationary processes and the influence of prices for raw materials and supplies of supplying companies.
5. When assessing the role of government regulation Research is being conducted to assess the impact of state economic policy on the level of income of the population in target market segments and forecast possible consequences, as well as to assess the impact of government regulation in the field of prices on the price change planned by the company and forecast possible consequences.
At the third stage of creating a pricing strategy, preparation of a draft pricing strategy for the company.
The list of issues that need to be studied when developing a pricing strategy, naturally, can be expanded depending on the company’s industry and form of ownership. Obtaining information from a list of questions allows you to identify the main trends in changes in the external and internal environment of the company, identify positive and negative trends in its development, evaluate alternative decision-making options based on criteria characterizing the achievement of the company’s goals: profit, profitability, market share, etc.
The process of developing a pricing strategy allows you to combine the efforts of all departments of the company to achieve key goals - ensuring competitiveness and conditions for survival. This is possible with the rational use of information by the company's services when developing a pricing strategy and justifying pricing decisions. Inattention to certain data at the first stage of developing a pricing strategy can lead to erroneous pricing decisions, reduced profits and even losses. Possible options for negative consequences for a company when making pricing decisions based on incomplete information are given in Table. 4. Differentiated trade discounts and surcharges can become an effective tactical tool for implementing the chosen pricing strategy. However, their use must be controlled taking into account the level of final prices. This is especially important for companies that have a multi-tier product distribution system.
Table 4. The nature of negative consequences in the case of making pricing decisions based on incomplete information
When developing a pricing policy, it is important not only to determine the price level, but also to formulate a strategic line for the enterprise’s pricing behavior in the market. The pricing strategy serves as the basis for deciding the selling price in any given transaction.
The choice of pricing policy is determined both by the goals of the company and its size, financial condition, market position, intensity of competition. Depending on these factors and their goals, firms apply different types of pricing policies.
There are different types of pricing policies in marketing:
Cost-based pricing policy (setting prices by adding target profits to calculated production costs; setting prices with reimbursement of production costs). This is the easiest way to set your price.
This method is acceptable only if the price found with its help allows you to achieve the expected sales volume. This method, however, remains popular for a number of reasons.
First, sellers have a better idea of their own costs than of the amount of demand. By linking prices to costs, sellers make it easier for sellers because this method does not require constant price adjustments in response to changes in demand.
Second, when all companies in an industry use this pricing method, prices are set at approximately the same level and price competition is minimized.
The high price pricing policy, or the “cream skimming” policy, involves selling goods initially at high prices, significantly higher than the production price, and then gradually reducing them. A pricing strategy that involves setting a high initial price for a new product to maximize profits from all market segments willing to pay the required price; provides less sales volume with more income per sale.
The use of this pricing policy is possible for new products, at the introduction stage, when the company first produces an expensive version of the product, and then begins to attract more and more new market segments, offering cheaper and simpler models to customers from various segments.
For a high price pricing policy, the following conditions are necessary:
The advantages of such a pricing policy include:
The main disadvantages of this pricing policy are that its implementation is usually limited in time. A high price level encourages competitors to quickly create similar products or their substitutes. Therefore, an important task is to determine the moment when it is necessary to start lowering prices in order to suppress the activity of competitors, stay in the developed market and conquer its new segments.
This type of pricing policy practically prevails in the market. It is actively used when an enterprise takes a monopoly position in the production of a new product. Subsequently, when the market segment becomes saturated, analogous and competing products appear, the company reduces prices.
The pricing policy of low prices, or the policy of “penetration”, “breakthrough” into the market, suggests that the enterprise initially sets a relatively low price for its new product in the hope of attracting a large number of buyers and winning a large market share.
Not all companies start by setting high prices for new products; most turn to market penetration. In order to quickly and deeply penetrate the market, i.e. quickly attract the maximum number of buyers and win a large market share, they install relatively low price. This method ensures a high level of sales, which leads to lower costs, allowing the company to further reduce prices. A company using such prices takes a certain risk, expecting that the growth in sales volume and income will cover the loss of profit due to a decrease in the price per unit of goods. This type of pricing policy is available to large firms with large production volumes, which makes it possible to compensate temporary losses on certain types of goods and market segments with the total amount of profit.
An enterprise achieves success in the market, displaces competitors, takes a somewhat monopoly position during the growth stage, and then raises prices for its goods. The following conditions favor the establishment of a low price:
Low price pricing is effective in markets with high elasticity of demand, when buyers are sensitive to price changes, so it is practically very difficult to increase prices, because this causes a negative consumer reaction. Therefore, an enterprise, having won a high market share, is recommended not to increase prices, but to leave them at the same low level. The enterprise is ready to reduce income per unit of production in order to obtain a large total profit due to the large volume of sales of low cost products, characteristic of producing goods in large quantities.
The pricing policy of differentiated prices is actively used in the trade practice of enterprises, which establishes a certain scale of possible discounts and surcharges to the average price level for different markets, their segments and customers. The differentiated pricing policy provides for seasonal discounts, for quantity, discounts for regular partners, etc.; establishment of different price levels and their ratio for various goods in the general range of manufactured products, as well as for each of their modifications.
Differential pricing takes several forms. Price differentiation by type of consumer means that different categories of consumers pay different prices for the same product or service depending on their financial situation. Losses or shortfalls in profit from selling goods at low prices to less wealthy buyers are compensated by selling them at high prices to buyers whose level of wealth allows this. Museums, for example, give discounts to students and pensioners.
With price differentiation by type of product, different prices are assigned to different versions of the product, but the difference is not based on differences in the level of costs.
Price differentiation by location means that a company charges different prices for the same product in different regions, even if the costs of producing and selling them in these regions do not differ. For example, theaters charge different prices for different seats based on the preferences of the public.
With price differentiation by time, prices change depending on the season, month, day of the week and even time of day. Prices for utility services provided to commercial organizations vary depending on the time of day, and on weekends they are lower than on weekdays. Telephone companies offer reduced rates during night hours, and resorts offer seasonal discounts.
For differential pricing to be effective, certain conditions must exist:
The pricing policy of differentiated prices allows you to “encourage” or “punish” different buyers, stimulate or somewhat restrain the sales of various goods on various markets. Its varieties are pricing policies of preferential and discriminatory prices.
Pricing policy of preferential prices. Preferential prices are the lowest prices; as a rule, they are set below production costs and in this sense may constitute dumping prices. They are established for goods and for buyers in which the selling company has a certain interest. In addition, the policy of preferential prices can be carried out as a temporary measure to stimulate sales.
Discriminatory pricing policy. Discriminatory prices are used in relation to incompetent buyers who are not oriented in the market situation, buyers who are extremely interested in purchasing goods, as well as when pursuing a policy of price cartelization (concluding an agreement on prices between enterprises).
Uniform pricing policy - establishing a single price for all consumers. It is easy to use, convenient, and builds consumer confidence.
The pricing policy of flexible, elastic prices provides for price changes depending on the buyer’s ability to bargain and his purchasing power.
The pricing policy of stable, unchanging prices provides for the sale of goods at constant prices over a long period. Typical for mass sales of homogeneous goods (price of transport, candy, magazines, etc.).
The leader's pricing policy provides either for the enterprise's correlation of its price level with the movement and nature of the prices of the enterprise - the leader in a given market, i.e. If the leader changes the price, the enterprise also makes corresponding changes in the prices of its goods.
The pricing policy of competitive prices is associated with the implementation of an aggressive pricing policy of competing enterprises with a reduction in prices and implies for a given enterprise the possibility of implementing two types of pricing policies in order to strengthen the monopoly position in the market and expand the market share, as well as in order to maintain the rate of profit from sales.
One of the important elements of the marketing mix is price. Price is an economic category, and pricing is the process of setting prices for goods and services. In market conditions, pricing is influenced by many factors: consumers, government, distribution channel participants, competitors, costs. In the practice of specific organizations, complex issues of pricing for goods and services are resolved. There are various types of pricing policies used in marketing, which include: high price pricing policy, or “cream skimming” pricing policy, low price pricing policy or “penetration”, “breakthrough” pricing policy, differentiated pricing pricing policy, preferential pricing policy , pricing policy of discriminatory prices, pricing policy of uniform prices, pricing policy of flexible, elastic prices and pricing policy of competitive prices.
Based on the results of the first chapter, we can conclude:
INTRODUCTION
Price is one of the most important indicators for the enterprise. Price is the monetary expression of the value of a product. Its main function is to provide revenue from the sale of goods. It is of great importance for consumers of goods and is very important for establishing relations between the enterprise and product markets.
Historically, price has always been the main factor determining buyer choice. This is still true in poor countries among disadvantaged groups for products such as consumer goods. However, in recent decades, consumer choice has become relatively more strongly affected by price factors, such as sales promotion, organizing the distribution of goods and services to customers.
Firms approach pricing problems in different ways. In small firms, prices are often set by senior management. IN large companies Pricing issues are usually dealt with by branch managers and product line managers. But here, too, top management determines the general guidelines and goals of the pricing policy and often approves the prices proposed by lower echelon managers. In industries where pricing factors play a decisive role ( aerospace industry, railroads, oil companies), firms often establish pricing departments that either develop prices themselves or help other departments do this.
Purpose of the study: to identify pricing features using the example of a public organization enterprise « M.video management.”
To achieve this goal, it is necessary to solve the following tasks:
Reveal the essence of pricing;
Consider basic pricing strategies;
Conduct an analysis of the price formation process at the enterprise;
Object of study: OO « M.video management.”
Subject of research: price formation.
The first chapter, “Formation of prices for enterprise products,” examines the concept and types of prices, pricing policies and pricing strategies, as well as pricing methods. The second chapter, “Formation of enterprise prices using the example of OO “M.video-management,” includes the development of pricing goals, analysis of pricing factors, and calculation of the selling price for SONY MDR headphones.
Chapter 1. Formation of prices for enterprise products
Price and its types
Price– monetary expression of the value of a product.
It performs various functions:
· accounting,
· stimulating
· distribution.
In the accounting function, prices are reflected publicly necessary costs labor for the production and sale of products, costs and production results are assessed. The stimulating function is used to develop resource conservation, increase production efficiency, improve product quality, introduce new technologies, etc. The distribution function involves taking into account in the price the excise tax on certain groups and types of goods, value added tax and other forms of centralized net income received by the budget of the state, region, etc.
Prices can be classified according to different economic criteria.
Classification of prices by degree of regulation
In conditions market relations One of the important classification characteristics of prices is the degree of their freedom from the regulatory influence of the state. A significant part of prices is free, determined on the market under the influence of supply and demand, regardless of any government influence.
Regulated prices are also formed under the influence of supply and demand, but may experience some influence from the state. The government can influence prices by direct restriction their growth or decline. The state, represented by government and administrative bodies, can set fixed prices for certain types of goods and products. In a market economy, there are mainly two types of prices: free and regulated.
The most consistent with the nature of market relations are free prices, however, it is impossible to completely switch to them alone. The state, if necessary, can intervene in the pricing processes and, depending on changing economic conditions move to regulated or even fixed prices.
Decisions of the Government of the Russian Federation, for example, stipulate that the range of goods sold at free prices can expand or, conversely, narrow at certain species regulated prices may be introduced for goods and services. In some regions, price regulation may depend on the local availability of commodity resources and financial capabilities. Moreover, the policy social protection population at certain stages of development requires direct state regulation of retail prices for individual consumer goods, which determine the subsistence level of the population (bread and bakery products, milk and dairy products, sugar, vegetable oil, etc.).
Classification of prices according to the nature of the serviced turnover
Based on the serviced area of commodity circulation, prices are divided into the following types:
· wholesale prices for industrial products;
· prices for construction products;
· purchasing prices;
· tariffs for freight and passenger transport;
· retail prices;
· tariffs for paid services services provided to the population;
· prices serving foreign trade turnover.
Wholesale prices for industrial products are the prices at which the products of enterprises, firms and organizations are sold and purchased, regardless of their form of ownership, in the order of wholesale turnover. This type of price is divided into wholesale enterprise prices and industrial wholesale (selling) prices.
Enterprise wholesale prices– prices of product manufacturers at which they sell manufactured products to consumers, reimbursing their production and sales costs and receiving such a profit that will allow them to continue and develop their activities.
Wholesale (selling) industry prices– prices at which enterprises and consumer organizations pay products to manufacturing enterprises or sales (wholesale) organizations. They include the wholesale price of the enterprise, the costs of the supply and sales or wholesale organization, the profit of the supply and sales or wholesale organization, excise tax and value added tax. The costs and profits of a supply and sales or wholesale organization constitute the amount of the wholesale sales discount (markup).
Wholesale (selling) prices of industry are more closely related to wholesale trade, while the wholesale prices of the enterprise are more inclined towards production.
Purchase prices– these are the prices (wholesale) at which agricultural products are sold by enterprises, farmers and the population. Usually they are negotiated prices, established by agreement of the parties.
Freight and passenger transport tariffs express the fees charged for the movement of goods and passengers transport organizations from cargo senders and the population.
Retail prices– prices at which goods are sold at retail trading network to the population, enterprises and organizations.
They include wholesale (selling) industrial prices, excise tax, value added tax and trade markup consisting of distribution costs trade organizations and their profits.
Other price classifications
Special types of prices directly related to trade are auction, exchange and negotiated prices.
Auction price– the price of goods sold at auction. It may differ significantly from the market price (be many times higher than it), since it reflects the unique and rare properties and characteristics of the goods, and may also depend on the skill of the person conducting the auction.
Exchange price– the price at which a wholesale transaction for the purchase and sale of goods is carried out on the exchange. It is a free price that fluctuates depending on demand, transaction volume, etc. The exchange price is quoted, i.e. its standard level is determined based on the most typical transactions. Exchange information is published in the relevant bulletins. The negotiated (contract) price is the price at which goods are sold in accordance with the concluded agreement. Contract prices may be constant throughout the duration of the contract or indexed on terms agreed upon by both parties.
When implementing foreign economic activity enterprises use different foreign trade prices. They will be discussed in detail in a special chapter of this textbook.
Prices are classified depending on the territory of coverage. In this case, they distinguish:
· prices are uniform across the country, or zone prices;
· regional prices (zonal, local).
Unified, or zone, prices can be set only for basic types of products that are covered by government regulation. We are talking about such types of products and services as energy, electricity, rent and some others.
Regional (local) prices can be wholesale, purchasing, or retail. They are established by manufacturers, pricing bodies of regional authorities and management. These prices are based on production and sales costs in a given region. Prices and tariffs for the vast majority of housing, communal and personal services provided to the population are regional.
Depending on other classification characteristics, competitive, oligopolistic and monopoly prices, demand prices and supply prices, reference, nominal and other types of prices can be distinguished.
Pricing policy of the enterprise
Enterprise pricing is complex process, consisting of several interrelated stages: collection and systematic analysis of market information, justification of the main goals of the enterprise’s pricing policy for a certain period of time, selection of pricing methods, establishment of a specific price level and formation of a system of discounts and price premiums, adjustment of the enterprise’s pricing behavior depending on emerging market conditions.
Pricing policy is a mechanism or model for making decisions about the behavior of an enterprise in the main types of markets to achieve the goals of economic activity.
Objectives and mechanism for developing pricing policy
The enterprise independently determines the scheme for developing a pricing policy based on the goals and objectives of the company’s development, organizational structure and management methods, established traditions at the enterprise, the level of production costs and others internal factors, as well as the state and development of the business environment, i.e. external factors.
When developing a pricing policy, the following issues are usually resolved::
· in what cases it is necessary to use a pricing policy when developing;
· when it is necessary to react with the help of price to the market policy of competitors;
· what pricing policy measures should accompany the introduction of a new product to the market;
· for which products from the assortment sold need to change prices;
· in which markets it is necessary to pursue an active pricing policy and change the pricing strategy;
· how to distribute certain price changes over time;
· what pricing measures can improve sales efficiency;
· how to take into account the existing internal and external restrictions on business activity and a number of others in the pricing policy.
The process of developing and implementing an enterprise's pricing policy can be represented schematically (Fig. 1).
Rice. 1. Stages of development and implementation of the enterprise’s pricing policy
Setting pricing policy goals
At the initial stage of developing a pricing policy, an enterprise needs to decide exactly what economic goals it seeks to achieve by producing a specific product. Typically, there are three main goals of pricing policy: ensuring sales (survival), maximizing profits, and retaining the market.
Ensuring sales (survival) – main goal enterprises operating in conditions of fierce competition, when there are many manufacturers of similar goods on the market. The choice of this goal is possible in cases where consumer demand is price elastic, as well as in cases where the enterprise sets the goal of achieving maximum growth in sales volume and increasing total profit by slightly reducing income from each unit of goods. An enterprise may proceed from the assumption that an increase in sales volume will reduce the relative costs of production and sales, which makes it possible to increase sales of products. For this purpose, the company lowers prices - uses so-called penetration prices - specially reduced prices that help expand sales and capture a large market share.
Setting a profit maximization goal means that the company seeks to maximize current profits. It evaluates demand and costs at different price levels and selects the price that will maximize cost recovery.
The goal of maintaining the market involves maintaining the enterprise's existing position in the market or favorable conditions for its activities, which requires taking various measures to prevent a decline in sales and intensification of competition.
The above pricing policy objectives are usually long-term, intended to cover a relatively long period of time. In addition to long-term, the enterprise can also put short-term goals of pricing policy. Typically these include the following:
· stabilization of the market situation;
· reducing the impact of price changes on demand;
· maintaining existing price leadership;
· limiting potential competition;
· improving the image of an enterprise or product;
· promoting sales of those goods that occupy weak positions in the market, etc.
Patterns of demand. The study of patterns of demand formation for a manufactured product is important stage in developing the pricing policy of the enterprise. Demand patterns are analyzed using supply and demand curves, as well as price elasticity coefficients.
The less elastic the demand is, the higher the price the seller of the product can set. And vice versa, the more elastic the demand is, the more reason there is to use a policy of reducing prices for manufactured products, since this leads to an increase in sales volumes, and consequently, the income of the enterprise.
Prices calculated taking into account the price elasticity of demand can be considered as an upper bound on price.
To assess the sensitivity of consumers to prices, other methods are used to determine the psychological, aesthetic and other preferences of buyers that influence the formation of demand for a particular product.
Cost Estimation. To implement a well-thought-out pricing policy, it is necessary to analyze the level and structure of costs, estimate the average costs per unit of production, compare them with the planned production volume and existing prices on the market. If there are several competing enterprises in the market, then it is necessary to compare the enterprise's costs with the costs of its main competitors. Production costs form the lower limit of price. They determine the capabilities of the enterprise in the field of price changes in competition. The price cannot fall below a certain limit that reflects production costs and an acceptable level of profit for the enterprise, otherwise production is economically unprofitable.
Analysis of prices and products of competitors. The difference between the upper limit of price, determined by effective demand, and the lower limit, formed by costs, is sometimes called the entrepreneur's playing field for setting prices. It is in this interval that the specific price for a particular product produced by the enterprise is usually set.
The price level set must be comparable to the prices and quality of similar or similar goods.
By studying competitors' products, their price catalogs, and interviewing customers, an enterprise must objectively assess its position in the market and, on this basis, adjust product prices. Prices may be higher than those of competitors if the product produced is superior to them in terms of quality characteristics, and vice versa, if the consumer properties of the product are inferior to the corresponding characteristics of competitors' products, then prices should be lower. If the product offered by an enterprise is similar to the products of its main competitors, then its price will be close to the prices of competitors' products.
Enterprise pricing strategy
The enterprise develops a pricing strategy based on the characteristics of the product, the possibility of changing prices and production conditions (costs), the market situation, and the relationship between supply and demand.
An enterprise can choose a passive pricing strategy, following the “price leader” or the bulk of producers in the market, or try to implement an active pricing strategy that primarily takes into account its own interests. The choice of pricing strategy, in addition, largely depends on whether the company is offering a new, modified or traditional product on the market.
When releasing a new product, an enterprise usually chooses one of the following pricing strategies.
“Skimming” strategy. Its essence lies in the fact that from the very beginning of the appearance of a new product on the market, the highest possible price is set for it based on the consumer who is ready to buy the product at that price. Price reductions take place after the first wave of demand subsides. This allows you to expand the sales area and attract new customers.
This pricing strategy has a number of advantages:
· a high price makes it easy to correct an error in price, since buyers are more favorable to a price reduction than to an increase;
· a high price ensures a fairly large profit margin at relatively high costs in the first period of product release;
· an increased price allows you to restrain consumer demand, which makes some sense, since at a lower price the enterprise would not be able to fully satisfy the needs of the market due to the limited production capabilities;
· a high initial price helps create an image of a quality product among buyers, which can facilitate its sale in the future when the price decreases;
· an increased price helps to increase demand in the case of a prestigious product.
The main disadvantage of this pricing strategy is that a high price attracts competitors - potential manufacturers of similar goods. The skimming strategy is most effective when competition is somewhat limited. A condition for success is also the presence of sufficient demand.
Market penetration (implementation) strategy. To attract the maximum number of buyers, the company sets a significantly lower price than market prices for similar products from competitors. This gives him the opportunity to attract the maximum number of buyers and helps him conquer the market. However, this strategy is used only in the case where large production volumes make it possible to compensate for its losses on an individual product with the total amount of profit. The implementation of such a strategy requires great material costs, which small and medium-sized firms cannot afford, since they do not have the ability to quickly expand production. The strategy is effective when demand is elastic, as well as when an increase in production volumes ensures a reduction in costs.
The psychological price strategy is based on setting a price that takes into account the psychology of buyers and the characteristics of their price perception. Typically the price is set at just below a round sum, giving the buyer the impression of a very precise determination of production costs and the impossibility of deception, a lower price, a concession to the buyer and a win for him. The psychological point that buyers like to receive change is also taken into account. In fact, the seller wins due to an increase in the number of products sold and, accordingly, the amount of profit received.
The strategy of following the leader in an industry or market involves setting the price of a product based on the price offered by the main competitor, usually the leading firm in the industry, the enterprise that dominates the market.
A neutral pricing strategy is based on the fact that the price for a new product is determined based on the actual costs of its production, including the average rate of profit in the market or industry using the formula:
C = C + A + P (C + A),
price products market
where C – production costs; A – administrative and sales expenses; P is the average rate of profit in the market or industry.
The prestige pricing strategy is based on setting high prices for very high quality products with unique properties.
The choice of one of the listed strategies is carried out by the management of the enterprise depending on the target number of factors:
· speed of introduction of a new product to the market;
· share of the sales market controlled by this company;
· the nature of the product being sold (degree of novelty, interchangeability with other products, etc.);
· payback period capital investments;
· specific market conditions (degree of monopolization, price elasticity of demand, range of consumers);
the position of the company in the relevant industry (financial situation, connections with other manufacturers, etc.).
Pricing strategies for goods sold on the market for a relatively long time can also focus on different types of prices.
The sliding price strategy assumes that the price is set almost directly depending on the relationship between supply and demand and gradually decreases as the market becomes saturated (especially the wholesale price, but the retail price can be relatively stable). This approach to setting prices is most often used for consumer products. In this case, prices and production volumes of goods closely interact: the larger the production volume, the more opportunities the enterprise (firm) has to reduce production costs and, ultimately, prices. The given pricing strategy requires:
· prevent a competitor from entering the market;
· constantly care about improving product quality;
· reduce production costs.
Long-term prices are set for consumer goods. It acts, as a rule, for a long time and is weakly subject to change.
Prices in the consumer segment of the market are set for the same types of goods and services that are sold to different social groups with different income levels. Such prices can, for example, be set for various modifications of passenger cars, for air tickets, etc. It is important to ensure the correct price ratio for various products and services, which is a certain difficulty.
A flexible pricing strategy is based on prices that quickly respond to changes in supply and demand in the market. In particular, if there are strong fluctuations in supply and demand in relatively short terms, then the use of this type of price is justified, for example, when selling some food products (fresh fish, flowers, etc.). The use of such a price is effective when there are a small number of levels of management hierarchy in an enterprise, when the rights to make decisions on prices are delegated to the lowest level of management.
The preferential price strategy provides for a certain reduction in the price of goods by an enterprise that occupies a dominant position (market share 70–80%) and can provide a significant reduction in production costs by increasing production volumes and saving on costs of selling goods. The main task of the enterprise is to prevent new competitors from entering the market, to force them to pay too high a price for the right to enter the market, which not every competitor can afford.
The strategy for setting prices for discontinued products, the production of which has been discontinued, does not involve selling at reduced prices, but targeting a strictly defined circle of consumers who need these particular goods. In this case, prices are higher than for regular goods. For example, in the production of spare parts for passenger cars and most trucks different brands and models (including discontinued ones).
There are certain features of setting prices serving foreign trade turnover. Foreign trade prices are determined, as a rule, on the basis of prices on the main world commodity markets. For exported goods within the country, special prices are set for export. For example, until recently, for mechanical engineering products exported, premiums were applied to wholesale prices for export and tropical versions. For some types of scarce products, when exported, customs duties are added to prices. In many cases, free retail prices are set for imported consumer goods based on the relationship between supply and demand.
Selecting a Pricing Method
Having an idea of the patterns of formation of demand for a product, the general situation in the industry, prices and costs of competitors, having determined its own pricing strategy, the enterprise can proceed to the choice specific method pricing for manufactured goods.
Obviously, a correctly set price must fully compensate for all costs of production, distribution and marketing of goods, and also ensure a certain rate of profit. There are three possible pricing methods: setting a minimum price level determined by costs; establishing a maximum price level generated by demand, and, finally, establishing an optimal price level. Let's consider the most commonly used pricing methods: “average costs plus profit”; ensuring break-even and target profit; setting prices based on the perceived value of the product; setting prices at current prices; "sealed envelope" method; pricing based on closed bidding. Each of these methods has its own characteristics, advantages and limitations that must be kept in mind when developing prices.
The simplest method is considered to be “average costs plus profit,” which involves adding a markup to the cost of goods. The amount of the markup can be standard for each type of product or differentiated depending on the type of product, unit cost, sales volume, etc.
There are two methods for calculating markups: based on cost or selling price:
The manufacturing company itself must decide which formula it will use. The disadvantage of the method is that the use of a standard markup does not allow taking into account the characteristics of consumer demand and competition in each specific case, and, consequently, determining the optimal price.
Yet the markup-based calculation method remains popular for a number of reasons. First, sellers know more about costs than about demand. By tying price to costs, the seller simplifies the pricing problem for himself. He does not have to frequently adjust prices based on fluctuations in demand. Secondly, it is recognized that this is the fairest method in relation to both buyers and sellers. Thirdly, the method reduces price competition, since all firms in the industry calculate prices using the same average cost plus profit principle, so their prices are very close to each other.
Another cost-based pricing method aims to achieve a target profit (break-even method). This method makes it possible to compare the amount of profit received at different prices, and allows a company that has already determined its profit rate to sell its product at a price that, with a certain production program, would allow it to achieve this task to the maximum extent.
In this case, the price is immediately set by the company based on the desired amount of profit. However, to recover production costs, it is necessary to sell a certain volume of products at a given price or at a higher price, but not a smaller quantity. Here, price elasticity of demand becomes especially important.
This pricing method requires the firm to consider different pricing options, their impact on the volume of sales needed to break even and achieve target profits, and analyze the likelihood of achieving all of this at each possible price of the product.
Pricing based on the “perceived value” of a product is one of the most original pricing methods, with an increasing number of firms starting to base their price calculations on the perceived value of their products. IN this method cost guidelines fade into the background, giving way to customers’ perception of the product. To form an idea of the value of a product in the minds of consumers, sellers use non-price influence methods; provide service, special guarantees to buyers, the right to use the trademark in case of resale, etc. The price in this case reinforces the perceived value of the product.
Setting prices at current prices. By setting a price taking into account the current price level, the company is mainly based on the prices of competitors and pays less attention to indicators of its own costs or demand. It can set a price above or below the price of its main competitors. This method is used as a price policy tool primarily in those markets where homogeneous goods are sold. A firm selling homogeneous products in a highly competitive market has very limited ability to influence prices. Under these conditions, on the market of homogeneous goods, such as food products, raw materials, the company does not even have to make decisions on prices; its main task is to control its own production costs.
However, firms operating in an oligopolistic market try to sell their goods at a single price, since each of them is well aware of the prices of its competitors. Smaller firms follow the leader, changing prices when the market leader changes them, rather than depending on fluctuations in demand for their goods or their own costs.
The current price level pricing method is quite popular. In cases where the elasticity of demand is difficult to measure, firms believe that the current price level represents the collective wisdom of the industry, the key to obtaining a fair rate of return. And, in addition, they feel that sticking to the current price level means maintaining a normal equilibrium within the industry.
Pricing based on the sealed envelope method is used, in particular, in cases where several firms compete with each other for a contract for machinery and equipment. This most often happens when firms participate in tenders announced by the government. A tender is a price offered by a company, the determination of which is based primarily on the prices that competitors can set, and not on the level of its own costs or the amount of demand for the product. The goal is to win the contract, so the firm tries to set its price below that of its competitors. In cases where the firm is unable to foresee the price actions of competitors, it proceeds from information about their production costs. However, as a result of the information received about possible actions competitors, the company sometimes offers a price below the cost of its products in order to ensure full production capacity.
Pricing based on sealed bidding is used when firms compete for contracts during bidding. At its core, this pricing method is almost no different from the method discussed above. However, the price established on the basis of closed bidding cannot be lower than cost. The goal here is to win the auction. The higher the price, the lower the likelihood of receiving an order.
Having chosen the most suitable option from the methods listed above, the company can begin to calculate the final price. In this case, it is necessary to take into account the buyer’s psychological perception of the price of the company’s product. Practice shows that for many consumers the only information about the quality of a product is contained in the price and, in fact, the price acts as an indicator of quality. There are many cases where, with rising prices, the volume of sales, and, consequently, production increases.
Price modifications
An enterprise usually develops not just one price, but a system of price modifications depending on various market conditions. This pricing system takes into account the peculiarities of the quality characteristics of the product, product modifications and differences in the assortment, as well as external factors sales, such as geographical differences in costs and demand, intensity of demand in certain market segments, seasonality, etc. Various types of price modification are used: a system of discounts and surcharges, price discrimination, stepwise price reductions for the offered range of products, etc.
Price modification through a system of discounts is used to stimulate buyer actions, for example, purchasing larger quantities, concluding contracts during a period of sales decline, etc. In this case, use different systems discounts: discounts, wholesale, functional, seasonal, etc.
Skonto– these are discounts or reductions in the price of goods that encourage payment for goods in cash, in the form of an advance or prepayment, or before the due date.
Functional or trade discounts are provided to those companies or agents that are part of the sales network of the manufacturing enterprise, provide storage, accounting commodity flows and sales of products. Typically, equal discounts are used for all agents and companies with which the company cooperates on an ongoing basis.
Seasonal discounts are used to stimulate sales during the off-season, i.e. when the underlying demand for a product falls. In order to maintain production at a stable level, the manufacturing enterprise may provide post-season or pre-season discounts.
Modification of prices to stimulate sales depends on the goals of the company, the characteristics of the product and other factors. For example, special prices may be set during any events, for example, seasonal sales, where prices for all seasonal goods are reduced, exhibitions or presentations, when prices may be higher than usual, etc. To stimulate sales, bonuses or compensation may be used to the consumer who purchased the product in retail trade and sent the corresponding coupon to the manufacturing company; special interest rates when selling goods on credit; warranty terms and agreements maintenance etc.
The modification of prices on a geographical basis is associated with the transportation of products, regional characteristics of supply and demand, the level of income of the population and other factors. Accordingly, uniform or zonal prices may be applied; taking into account the costs of delivery and cargo insurance, based on the practice of foreign economic activity, the FOB price, or franking system (ex-supplier warehouse, ex-wagon, ex-border, etc.), is used.
It is customary to talk about price discrimination when a company offers the same products or services at two or more different prices. Price discrimination manifests itself in various forms depending on the consumer segment, the form of the product and its application, the image of the enterprise, the time of sale, etc.
A stepwise reduction in prices for the proposed range of goods is used in the case when an enterprise produces not individual products, but entire series or lines. The enterprise determines which price levels need to be introduced for each individual product modification. In addition to differences in costs, it is necessary to take into account the prices of competitors' products, as well as purchasing power and price elasticity of demand.
Price modification is possible only within the upper and lower limits of the established price.
Thus, the first chapter examines the concept and types of prices, pricing policies and pricing strategies, as well as pricing methods.
