Price is the exchange value of goods (services), expressed in monetary terms. It is formed under the influence of two economic phenomena: supply and demand. With a large volume of goods on the market and low purchasing power, the price is set low. Conversely, a combination of deficit with high demand leads to an increase in the cost of the product.
How can various factors influence supply and purchasing power? And how is the price policy of the company regulated? For example, consider a company that produces coffee. Due to severe frosts, most of the crop dies. A situation has developed in the market - a shortage of coffee. The company, in order to increase its profits, begins to raise the price level. Buyers who are not able to purchase coffee for such a price choose an alternative product (tea, chicory, etc.). Similarly, new volumes of supply and demand will be established in the market, while the equilibrium price will increase. The reason for this reaction of buyers is the limited funds. Therefore, people are trying to buy alternative low-cost products. At the same time, they will satisfy a greater volume of their needs than if they bought coffee.
Pricing policy in marketing is one of the most important tools to achieve corporate goals. It performs three main functions for the company:
1. Determines the volume of sales. How many people will have the desire and ability to buy goods with these consumer properties. At a lower cost, sales will be higher.
2. Determines the specific profit per unit of product. The higher the price, the greater profit the producer will receive.
3. Supports other marketing tools. Pricing is not the only determinant of profit. Revenue is affected, for example, by the number of outlets. In this case, sales are increasing. But a large number of stores also leads to higher costs, and they reduce the amount of net profit.
Pricing should be consistent with the goals the company wants to achieve. Usually they are associated with a certain amount of profit, sales. A company’s goal can also be survival in the market, defeating competitors, establishing a certain image, etc.
A company can set a price in the expectation of a certain profit in the short or long term. When a company plans revenue growth for a period of more than 1 year, then it is necessary to set additional goals for a shorter period of time (month, quarter, etc.).
The pricing policy of the company can be formed taking into account the increase in sales. But it is worth considering that in this case it is also necessary to reduce the unit costs of producing a unit of output. Growth in sales implies an increase in market share, a victory in competition and a high return in the long run.
The pricing policy corresponding to the position of survival is established during periods of intense competition. The company in this case has large stocks of products, high production capacities and small sales. The goal of the company is to increase sales in order to earn income from finished products in stock.
Thus, the pricing policy of the company depends entirely on the goals that it wants to ultimately achieve. The increase in profit is due to an increase in prices, and the survival and growth of sales - by reducing the cost.
The buyers for each company develop one or another image - the image. It depends on the price and quality of the product it sells, as well as how polite and competent people work in it.