Pricing policy refers to the way a company sets the prices of its services and products basing on their value, demand, cost of production and the market competition. Pricing policy is essential for all companies as it provides a guideline for creating profits and areas that bring in losses. Pricing policy goes hand in hand with pricing strategy.Continue Reading
Establishing a pricing policy enables business managers to create pricing strategies depending on the pricing goals of the company. Examples of pricing goals set out by companies include fighting competition, increasing profits, increasing the company’s cash flow and stabilizing the product prices. Pricing strategies are necessary when setting pricing policies. Companies consider the prevailing market conditions to determine the right prices of their products as per the state of the market. Other important factors considered when developing pricing policies include competition, costs, different market segments and the customers.
Development of pricing policies begins with considering the pricing based on the production costs. The second consideration is the value of the products followed by pricing according to the current demand of the products and services. Additionally, the pricing factor varies according to the age of the company in the market. New entrants offer lower prices to attract customers whereas the incumbent firms vary. The old firms that fear the influence of the new entrants can lower their prices in a bid to retain a larger share of the market. Other firms resort to improving service and enhancing customer loyalty. These factors determine the strategies and policies taken by managers when determining the prices of their products.Learn more about Economics
Heating oil prices are affected by seasonal demands, changes in the cost of crude oil, competition in markets and operating costs. The price consumers pay differs over time and depends on where they live.Full Answer >
Wal-Mart reducing its prices to the point that the competition cannot compete, and American Airlines reducing its ticket prices to below cost and increasing the frequency of its flights are two examples of predatory pricing. By reducing their prices to these extremely low levels, large businesses hope to put small competitors out of business and create a monopoly. Large businesses can handle short-term losses if it leads to the elimination of competition in an area.Full Answer >
According to Inside Business Magazine, a company faces direct competition when there are other businesses within the market that offer the same services or products. Indirect competition occurs when a company faces business rivalry from substitute services or products. Both direct and indirect competition may lead to negative impacts on a company's performance. Designing and implementing a good business plan is an effective strategy in overcoming fierce competition.Full Answer >
The disadvantages of monopolies are not to the monopolistic companies themselves, but are instead suffered by their competitors and the overall market through the effects of pricing discrimination, price fixing and the influence of "corporate cartels" that are able to deter competition through shared directorship and company mergers. Monopolies can act as "price makers" and force their competitors to become "price takers." Lacking the economies of scale enjoyed by a monopolistic company, a smaller company can then be "priced out" of the market, which leaves the field open to the monopoly company.Full Answer >