Raw materials, labor, and commissions on units sold are examples of variable costs. The firm has to study the market demand and formulate its pricing strategy. It launches a low price fighter brand to compete with low price competitor brands. For example you might be a freelancer who will do whatever it takes to get a job just right, or perhaps you are on call 24-7, or perhaps you provide the minimum amount of communication to cut costs. Time period considered: elasticity tends to be greater over thelong run because consumers have more time to adjust their behavoirto price changes. This content was accessible as of December 29, 2012, and it was downloaded then by in an effort to preserve the availability of this book.
Semi variable costs are those which change with the level of activity but not in direct proportion. This also explains some of the success of the frequent flyer and other reward programs. But mostly the monopoly firm keeps its price low for a number of reasons like quick penetration in the market, government intervention etc. Costs: Influence the price setting decisions of an organization. Slowly, as some customers buy the product, they spread the news of its adequate quality.
To make sure all costs are included, you may want to highlight the fixed costs in one color e. This was not an original but actually copied down from a Dane legend. For example, the waistband of sweatpants may stretch if you pull on it. The retail gas market is a good example of an oligopoly because a small number of firms control a large majority of the market. In the world of business, product and price are part of the 4Ps of marketing.
It took one college kid a weekend to write. The pricing decision influences the demand of the product in the market, the pricing strategy of the competitors, the profitabilty of the company and the most important is the customer decision on purchasing the product such as which barnd product to but and which not, which will give the major satisfaction to the customer by rendering the higher value at the lesser price then the competitors. Regulations When setting prices in other countries, companies must research all national regulations relevant to their product. The first reason for the high product price is due to lack of competition. However, while the organization may have control over these factors making a quick change is not always realistic. The degree of market concentration is very high. Level of market demand This is the fifth factor that can greatly affect your product pricing strategy.
You can also maneuver to focus on certain geographic locations where the competition is relatively weak, and where the opportunities to grab market share fast enough is possible. Fixed costs are those costs which remain fixed at all the levels of production or sales. There are many factors that influence a customer's price sensitivity, and pricers need to understand these factors long before setting a price for any individual customer. Yet, many companies do not handle pricing well. The strategic pricing of your product is such an important part of a business building process that its importance can never be over emphasized. These are the questions you must answer before planning your business and marketing strategy.
Signs that demand is low include finding yourself competing to win jobs, a shortage of work and fellow freelancers reentering the workforce. For more information on the source of this book, or why it is available for free, please see. To help illustrate, consider these two products: One is a social media tool with a sophisticated speech-processing algorithm. The more you know about what others are charging and what services they provide for the money, the better you'll know how you fit in to the market. This has to do not just with demand for that particular product, but with macroeconomic demand for national currencies, which affects inflation and, by extension, pricing. Whatever your rate, expect it to be commensurate with your skill. Effective, buyer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that fits this value.
Conversely, when interest rate fall down, the price of gold will likely rise. Product Characteristics: Include the nature of the product, substitutes of the product, stage of life-cycle of the product, and product diversification. Depending on the uniqueness of the product value to the customer, the organisation sets a price. However, while the organization may have control over these factors, making a quick change is not always realistic. Thus, a firm can charge higher profits in case of inelastic demand.
The seller then attempts to persuade the buyer to purchase higher-priced products, perhaps by telling him or her that the low-priced product is no longer available. In other words the value exchanged for use of the benefits of a certain product or service by the customers is called price of that product or service. Pricing strategy, thus, largely determined by decisions on market positioning. For example, each car produced includes the variable cost of tires, metal sheets, Misc items etc that change with the increase or decrease in the quantity of production and sales. Another important characteristic of an oligopoly is interdependence between firms. Competition: While fixing the price of the product, the firm needs to study the degree of competition in the market. Personal relationships are most susceptible to this type of perceived cost, due to the emotional investment the customer has made in the relationship.