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Sample Essay on Pricing decision

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Sample Essay on Pricing decision

Introduction

Effective pricing strategies aid companies in determining the point at which profits can be maximized. While customers cannot purchase highly priced goods, a company cannot either make profit to guarantee survival by setting prices too low. Ingrained in McClure & Montague (2014) assertions, pricing decisions have a crucial impact on the consumer’s decision of either purchasing or not. During price setting, companies consider a range of factors that entail production, positioning, and distribution costs.

Firms adopt vast strategies when setting prices of goods and services they produce. Against this background, this study willreview the overall components of the pricing strategies. Giving a description of a company that has used a purchasing strategy to improve its financial impact will constitute the scope of this study.

Components of pricing strategy
Pricing at premium

Premised on this strategy, businesses set prices that are higher thanof that of their competitors;this strategy is effective during the earlier days of the products life cycle. This method of pricing is applicable to small businesses with unique products. The higher prices should be instilled in customers’ perception. Firms ensure that marketing efforts, packaging, and store décorare aligned to support the premium priceas in airline product services and Porsche(Boundless, 2015).

Psychological pricing

This is the strategy that marketers use tolurecustomerstorespondto emotional levels than being premised on logical ones. The firms consider the positioning of pricewithin the market place. Example, setting the price of a wrist watch at $199 is more attractive to customers than setting its price at $200.

Economic pricing

This pricing aims at luring most price conscious customers. It enables the businesses to minimize the costs associated with production and marketing to lower the product prices (Bartol, 2013). This price is mostly used in businesses including generic and food suppliers, example, Wal-Mart and Target. This strategy is not favourable to small businesses due to lower volumes which will lead it to struggle to generate sufficient profits.

Bundle pricing

The business sells a bundle of products at reduced price. As elucidated by McClure & Montague (2014), buy one andget one free based promotions increases the value of perception in the eyes of the customers. This pricing strategy is used in businesses selling ofcomplementary goods such as in a restaurant.

Price skimming

The business sets the initial high price later onit lowersthepricegradually as the competitor goods emerges in the market this  ensure that the product is available to a wider market range.This strategy aims at skimming the profit margins step by step thus maximize on earlier stages before lowering the prices in order to attract morecustomers.

Competition pricing

Businesses sets prices in comparison with competitor goods, particularly,where they have three options,lower price,price the same or price higher than those of the competitors.

 

 

Penetration pricing strategy

In this strategy, the business sets prices that are lower in order to increase the sales and have wider market range then after capturing the market it raises its prices (Boundless, 2015). Example is a television satellite setting lower prices to get subscribers.

Product line pricing

It is a strategy where pricing of different products within the same product range at different price positions is done. Example the DVD manufacturing offering different DVD recorders with same features at different prices

Examples from external research to support of pricing strategy
Internal examples that influence pricing
Image of the firm

The reputation of the firm determines the price of the product that is in the market (Bartol, 2013). Example,the high demand for HUL and the protector goods attract high prices because of the attributed goodwill they enjoy in the market.

Promotional activity

This determines the price via the activities the business gets involved in such as advertising that are sought to attract more purchasethus high returns for the product.

External examples that influence pricing
Economic condition

Businesses bear all the conditions when setting prices of the products such as during recession there isless money to spend thus the marketer should reduce the prices to lure buying decisions of consumers.

 

Government control

The rule and regulations put in place by the government should be cared for while fixing prices of products,such as the government may announce standard prices for products therefore the marketers should bear in mind such regulations while setting prices.

Competition

Ingrained in McClure & Montague (2014) study conclusions, the degree of competition in the market is a great determinant of the prices of the products. If there is stiff competition, the prices may be low to face the competition and if the competition is low the prices would be kept high.

Boeing Company

Companies embrace purchasing strategies to ensure they realize cost effective purchasing decisions from a group of businesses who producequality goods ontime based on agreeable terms(Bartol, 2013).The BoeingCompany founded in July 1916 is theleading provider of flight services in the aerospace industry and a manufacture, researcher, and designer of the airliners for both military andcommercial useofaerospaceindustry in the U.S and the world at large.

Boeing Company uses psychological pricing when selling air tickets to its customers. In this strategy, Boeing lures customers by placing the price of the air tickets slightly below the normal price by few dollars. As such, Boeing has gained financially from the increased returns attributed to customer influx.

When selling its airliners, Boeing has utilized the pricing at premium strategy to sellitsairlinersto its conscious customers. Boeing sells its airliners at high prices compared to that of its competitors. Boeing’s good image in addition to having acomparativeadvantage over other companies makes it record a big customer base. Based on the Boeing’s returns in the year ending June 30 2015, a profit of $359,555,000 dollars was realized and further recorded a net cash flow of $1,212,217,000 (Boundless, 2015).

Consequently, Boeing Company has a positive cash flow thus able to meet the financial obligations. Notably, Boeing’s adoption of the pricing at premium strategyand its image name have helpedit to sell more than other competitorsmaking it have more profit margins thus improving its financial position.

Conclusion

In conclusion, pricing strategies are methods that are embraced by the different firms premised on various situations and conditions prevailing in the market place to fix prices. The pricing strategies enablecompanies to gain the intended profits.This study established that Boeing Company embraces both psychological pricing when setting air ticket prices and pricing at premium strategy when setting prices for its airliners. Ingrained on the two pricing strategies, Boeing has realized substantial profit margins thus improving its financial position.

 

 

 

 

 

 

 

 

References

Bartol, K. M. (2013). Management Functions: Pacific on focus. North Ryde, N.N.W: McGraw-Hill Education.

Boundless. (2015). TheExternal and Internal Control. Retrieved 19 May 2016 from 

McClure, M. & Montague, R. (2014). Correlates of Behavioral Preferences. A Journal for IMC Strategic Planning, 44, 370 – 377.

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