Post-graduate
student Kastornova T.N.
Michurinsk
State Agrarian University, Russia
Substance,
stages and ways of pricing policy formation
Pricing policy formation in relation to goods and
services advanced on the market is one of the most important components of
marketing. The purposeful price policy in marketing consists of the importance
of price establishment when there is a possibility to change them depending on
a situation in the market, as well as to seize a certain market share and to
receive the planned volume of profit, etc.
Each businessman independently establishes the price
for the goods. There are two approaches to market pricing: the establishment of
individual or uniform prices. The first one is formed on a contractual basis as
a result of negotiations between the buyer and the seller, interests of the
parties providing coordination. The second approach is characterized by the
situation when all buyers acquire production at the identical price. The
uniform prices introduction for all consumers is connected usually with the
market features of a concrete type of production, or with technical complexity
and large expenses at prices differentiation. Uniform prices are important
where the businessman offers the standardized product of a mass production
within the market area. In this situation it is important for a mass consumer
to know price, to compare it with the price of competing producers and to make
the purchase decision without problems.
The price has always been and still remains the most
important criterion of the adoption of consumer decisions. Lately other, newly
appeared factors of the competition have been broadly developed. Nevertheless,
the price keeps the positions of a traditional element in a competition policy;
it has a great impact on market situation and enterprise profit.
At the same time, the price policy of many enterprises
is insufficiently qualified quite often. Most often the mistakes meet the
following: pricing is excessively focused on expenses; the prices are poorly
adapted for the change of market situation; the price is used without any
communication with other marketing elements; the prices are insufficiently
structured by various options of production and market segments.
In this regard, price policy is one of the components
of marketing complex, including the establishment of the production prices by a
producer and the ways of their alignment depending on a market situation for
the purpose of mastering by a certain market share, ensuring the planned profit
volume, suppression of the competitors’ activity and the performance of other
strategic objectives.
So, making a marketing complex the price policy has to
be developed taking into account the following facts:
- the aims of the enterprise;
- the external and internal factors influencing pricing;
- the nature of demand (in particular, elasticity degrees at the
prices);
- costs of production, distributions and realization;
- the real value of production.
The development of the enterprise’s price policy has
to include:
- the establishment of initial price for products;
- timely adjustment of the prices for the purpose of their reduction in
compliance with changing market conditions, enterprise opportunities, its
strategic objectives and tasks, actions of competitors.
It should be noted that according to the development
of price policy, there are both external and internal impact factors. Among the
factors of environment influencing price policy of the enterprise, the main
are: the government actions, participants of marketing channels, reaction of
consumers, the competitors’ policy.
The expenses prevail among internal factors, and their many components
don't give in to control from the enterprise and occupy essential specific
weight (the prices of fuels and lubricants, the electric power, agricultural
machinery, spare parts and construction materials, mineral fertilizers, means
of protection of plants).
The establishment of an initial price can be based on
the following models.
At an expensive method the price calculates proceeding from the sum of
constants, a variable unit cost and the planned profit taking into account the
bottom threshold of the prices. At indirect trade the sale price increases by
the margin size depending on the features of production, and also from
elasticity of demand at the prices. The expensive method doesn’t consider
market factors (nature of demand, level of solvent demand, the policy of
competitors), and also the price determined thus, practically is always
overestimated and in a concrete situation is fraught with negative consequences
for a seller. However there are also positive estimates of this model: if
within one branch all producers of similar production use an expensive method
of pricing, the price competition is minimum, and the prices are more real and
exclude benefit at the expense of buyers. The calculation for this method is
the simplest and there is also no need to study demand here.
At a pricing method of “orientation to demand” the
price size is defined within the level of solvent buyers’ demand of a target
segment and in this case there is the top threshold of the price. Here the
nature studying of demand from the point of view of elasticity to the price for
the purpose of the subsequent changes entering the current prices is also
necessary. This method is important when pricing is in the conditions of the
price competition as a way of response to the competitors’ policy.
The combined method represents pricing model at which
the initial price pays off an expensive
way and is corrected taking into account market factors of competitors’ policy,
level of solvent demand and behavioral features of buyers, elasticity of demand
at the prices.
At a method on the basis of target rate of price
return it is calculated taking into account receiving desirable rate of return
on the invested capital. Price calculations in this case depend on output and
realization; in this connection it is necessary to define a critical point of
output:
Co = Ec. : P – Ev.
where: Co – critical output;
Ec. – constant expenses;
P – price;
Ev. – variable expenses.
The critical output decreases owing to the fall in
constants and variable expenses. Besides, on the calculated price we notice
some impact on market factors also, i.e. the nature of demand and the
competition.
Production price at a pricing method on the basis of
its felt and real value is established proceeding from its perception by
consumers, or real value. If the price
on the basis of real value isn’t overestimated, the firm in this case uses the
low prices strategy.
The method according to the current prices represents
a pricing model at which the price corresponds to the price level which has
been established in the competitors’ market. The small companies usually adhere
to the strategy of “the leader’s followings” and adjust prices for products
after changes in price policy of leading firm of branch. At the same time, the
price shouldn’t be below the cost to the own company’s determinant.
The initial price established by one of the listed
ways, differs from the final price for many reasons and under the influence of
a number of factors.
Definition of the final price can be connected with
the sales promotion purpose. Taking into account the remuneration of consumers
for certain actions, such as early payment of accounts, purchases of large
volume, the initial prices can change.
Agricultural producers can apply some shipped
production of a discount for payment by cash and quantity of bought production,
and also various margins.
The discount for quantity can be used by buyers getting a large number
of productions. However, on the one hand, this discount shouldn’t exceed the
sum of expenses’ economy of the seller in connection with the sale of big lots
of products. The economy develops within the expense of reduction of
realization costs, stock maintenance of finished goods and its transportation.
Speaking about the other – the discount serves for the consumer as incentive to
make purchases at one seller, instead of several suppliers.
The margin represents an extra charge to the price
which has to be contractual for the excess of certain production parameters.
Price and monetary policy are one of the main
components of marketing activity. It’s greatly important for it to be correct
and elaborately constructed. All commercial results, the degree of efficiency
of all production and marketing activity of the enterprise depend on it.
The essence of purposeful price policy consists of
the establishing these prices of
production and so it’s important to
vary them depending on the position in the market, its share size, as
well as to provide competitiveness of ready production on price indicators and
the planned profit volume.