PRICING POLICY: WHAT IT CONSISTS OF AND OBJECTIVES - DUDAS - 2025

The pricing policy of a company is defined as the part of the marketing plan where the monetary value that the organization asks for in exchange for the products or services it sells is set. These prices must be set as a result of an extensive evaluation and analysis of all the variables that intervene in the process.

Among these variables are the cost of materials, the quantity produced, general prices, the desired profit margin, the market, customers and their purchasing power and production factors, among others. To synthesize all of this, pricing policy has to be set with a number of determining factors in mind.

One of these factors includes the objectives of the organization. It is necessary to define what objectives the company has with the pricing policy that it decides to use, in the short, medium and long term. The costs of the product or service are also important, which serve to know the limit in which the investment is recovered.

In this case, the price should not lower the total cost of the product; otherwise, it will incur losses. In addition, the elasticity of demand plays a fundamental role in determining prices: depending on how the market reacts to changes in rates, it will be possible to determine to what extent it is feasible to set one price or another.

Likewise, the value that customers give to the product is very valuable information, since knowing the image that customers have of the product or service will allow us to know what price we can put on it.

Finally, it is necessary to consider the competition: its substitute products are decisive when deciding the price policy.

What does it consist of?

As we have said, the pricing policy consists of defining the market value that a company grants to its products and services. In order to do this, three steps should be taken:

Itemize pricing rates

The first step should be an orderly summary of all the products and services offered by the organization, separated by product lines, business units, among other categories.

Once this is done, a market price must be set, first without VAT and then adding the corresponding VAT for each of these.

In this way, the company will have a summarized image of its general price policy, with a view to future modifications and for its annual marketing plan.

Price and cost analysis

Once the different prices are available, a detailed analysis of all production costs and market prices must be carried out.

External analysis

It refers to analyzing the prices of the competition and the general market in which the company operates. Some possible analyzes may be the following:

- Analyze the average prices in relation to those of the market.

- An analysis of the prices of all the products and services of the organization's direct competitors.

- An analysis of the prices of all the products and services of the indirect competitors of the company, including those of substitute products.

- An analysis of the discount policy of competitors and the market.

Internal analisis

Within the organization itself, it has to analyze the total costs of producing the goods and / or services it markets. Some of these analyzes could be:

- The fixed and variable costs (direct and indirect) of production, the margin on sales for all the products and services that the company sells.

- The costs of marketing actions and their return on sales.

- The total costs, the margin and the total income for each product and / or service and, consequently, the profitability of all the products and services that the company sells.

Definition of the new rates

With the data obtained so far, it is time to mark the new prices of the company's products and services.

In some cases they will be maintained, in others they will have to be increased and in others reduced. In any case, these must be aligned with the rest of the actions of the marketing plan.

In addition, it will be necessary to take into account the policy of discounts and promotions that has been decided in order to achieve the proposed objectives.

An inadequate pricing policy can cause irrecoverable losses, so its fixation has to be worked on and the company must dedicate the necessary time to it.

goals

With the pricing policy, the company has to decide how it wants to position itself in the market for each of its products and / or services. For this, it must have clear and concise objectives, to facilitate the implementation of the most appropriate pricing policy.

The objectives that can be pursued with the pricing policy are various. Here are some very common ones:

Survival

By setting prices higher than the fixed and variable costs of the company, it can survive. It is a short-term objective, since in the long term more ambitious objectives such as quality improvement should be sought; if not, the company will quickly die out.

Profit maximization

This objective seeks to maximize the profit of the company. There can be three approaches:

Optimization

Profit optimization seeks to earn as much as possible. However, it is not highly recommended, since it is difficult to define the optimal price to achieve it.

Satisfactory units

In this case, the aim is to achieve satisfactory benefits for shareholders, which are consistent with the type of industry.

Return on investment (ROI)

It is the most common, since the profitability obtained is measured based on the assets of the company.

Market share

With this objective, the relationship between the profits on the company's sales and those of the total market is measured; that is, the company plus its competitors.

Increase sales volume

This objective attempts to increase sales volume regardless of profitability, environment, or competition. There are times when companies may be willing to take losses to achieve this goal and enter the market.

Leadership in product quality

This objective seeks to find the most perfect mix possible between high price, quality and luxury, with a very strong and loyal customer base.

References

1. Czinkota, Michael and Kotabe, Masaaki (2001) "Marketing Management", International Thomson Publishers.
2. Kotler, Philip and Keller, Kevin (2006) "Marketing Management", 12th Edition Prentice Hall.
3. Lamb, Charles, Hair, Joseph and McDaniel, Carl (2002). "Marketing", 6th Edition, International Thomson Editores.
4. Stanton, William, Etzel, Michael and Walker, Bruce (2004) "Fundamentals of Marketing", 13th. Edition, McGraw-Hill Interamericana.
5. Kerin, Roger, Berkowitz, Eric, Hartley, Steven and Rudelius, William (2004) «Marketing», 7th Edition, of, McGraw-Hill Interamericana.