Maximizing profitability is the main aim of most firms. This is done by balancing the equation of production cost and the income being brought by the commodity. To maximize the profit certain strategies has to be laid. They include: 1) increasing the prices- This one should be done in a manner that sales are not affected since reduction reduces the profit. 2) Increase the productivity of the staff members and customer services by rewarding and teaching them new sales skills. 3) Research on the market and find new customers that are ready to work with the given firm’s policies to ensure profits are made (Rao et al. 110). For example, customers should have a set price of an item without fluctuation. 4) Advertise the commodity to attract more customers since it increases sales.
Price is the value that is used to purchase the finite quantity, other measures of services or goods. In business, price is determined by what the buyer is willing and able to pay, how much the seller is willing to accept and what the market competition is allows. These three aspects determine the price of a certain commodity. It is one of the business variable over which companies can exercise degree of control. There are four major roles of price in marketing. One, the price gives fast and direct communication with the customer. The price also gives the position of certain item in the market. Two, it is a method that allows one to quickly attack the competitors and position the business away from direct competition. Finally, price can also be used as a marketing technique to attract customers ((Rao et al. 127). It is a form of advertisement since customers have different perception of an item. The s effective pricing strategy is important in determining price of items that should be ensured to realize profit in a firm.
Numerous factors are known to affect the pricing of a commodity. These factors may vary from internal factors to external factors. The internal factors are the forces within the company that can be controlled by the firm. They include: 1) Organizational factors – this is the top management of a company that has the authority over item pricing. The marketing managers assist the management in determining and administering price of commodities based on policies that are laid by the management. 2) Marketing mix – some companies may use the price of a commodity as a technique of marketing the item. For example, lowering the price of a commodity attracts many people, however, some customers may think the item is of low quality. 3) Product differentiation – the price of a an item may be high or low depending on the substances that are added to attract customers, such items may be attractive packages, quality, size, and color. Customers pay more price to commodities with high quality.4) cost of production. High cost of production means high price of a commodity.
External factors are forces outside the company which the firm has no control. They create difficulty in deciding on the price of an item. They include: 1) Product demand – demand of a commodity is affected by the capacity and willingness of the potential buyers. A company can determine the price of an item by testing it in the market and comparing the results of demand by different prices. 2) Government rules and regulations – regulatory rules of an item by the government determine its price. 3) Behavior and nature of users and consumers affect the price. When one item is on demand by many potential customers, the price is expected to go up.
To achieve the standard price of a commodity, there are crucial guidelines that have to be looked to ensure the item is sold and profit is maximized. One of the strategies is the cost of production. The cost of producing an item should not be more than what is gotten after it is sold. Therefore, the firm should be realistic and consider current competition and demand in the market. Another aspect is competition the prevailing information of what the competitors are charging is very important in determining the price of the commodity. The price can be lowered to attract the customers in case they are few (Rao et al. 215)
Another important aspect to set the price of a commodity is the demand and the behavior of the consumers. When the demand is too high and people flock for a specific commodity the price tend to be high. This is a form of maximizing the profit when the item is still in high demand. Lastly, Price sensitivity of buyers may shift and the pricing strategy of the firm should shift with them.
One of the most effective strategies is improving price responsiveness. This is an effective strategy to prevent margin erosion in firms. Companies should fine-tune pricing across services so that it aligns with market conditions. Communicating prices in all market networks of partners, sales representatives, and distributors arms the team with pricing information that is needed for competition. Another effective strategy is to set a granular pricing. Instead of using an ad hoc strategy, the firm should set negotiation and prices guidance according to customer segments.
Rao, Akshay, R., Mark E. Bergen, and Scott Davis “How to Fight a Price War,” Harvard Business Review, 78/2(2000): 107-216.