Purchasing and Supply Chain Management: Pricing Decision

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Week 4 Assignment Pricing Decisions
BUS 612-Advanced Project Procurement
October 01, 2012

Pricing Decision
One of the most important and complex decisions a firm has to make is how much to pay for its items and services. The buying professional should be able to detect easily exceptionally high prices. Thus, it is necessary to give meticulous consideration to pricing decision when buying products and services. Pricing is one of the most important decisions a marketer makes regarding a product since price plays a crucial role in competitiveness and consumer demand. Marketers must determine price at the initial stage of a product's life and re-evaluate pricing to manage the delicate balance between production and profits (Benton, 2010). No product can succeed if its pricing is too out of line with standards in its industry. A thirty ounce can of peanuts no matter how good cannot be priced at ten dollars and expect to draw a consumer following that allows it to achieve beyond a niche in the market. When developing pricing strategy, managers must do a thorough evaluation of competitor pricing to determine the prevailing pricing structures and how their product is positioned. Pricing Strategy

Pricing strategy refers to method companies use to price their products or services. Almost all companies, large or small, base the price of their products and services on production, labor and advertising expenses and then add on a certain percentage so they can make a profit. There are several different pricing strategies, such as penetration pricing, price skimming, discount pricing, product life cycle pricing and even competitive pricing (Stevenson, 2010). When considering how a price should be set, one fundamental question should be answered, what the organization is attempting to achieve with this price (Indounas, 2009). How the product is priced has an effect on the success of the company. “Price reflects more than cost and profit; pricing decisions also must be...
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