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Pricing - Erukhimovich IL

3.2. Market pricing mechanism

Price - is the main form of communication and universal producers and the market. It makes it possible (or impossible) the sale of goods and, hence, the very existence of economic goods manufacturer. Possibilities of implementation of almost all economic interests ultimately determined the price level at which the goods bought and sold. The correct choice of the price is the key to good financial health and financial stability of the enterprise (company), the successful implementation of tactical and strategic planning.

World practice has accumulated a large experience in the development and use of market-based pricing mechanism, which is influenced by the following conditions:

• the number of market participants (buyers and sellers): more than them, the less price changes;

• independence of market participants: the fewer, the more opportunities both sellers and buyers to influence the price level, and vice versa;

• The degree of individualization of goods (works, services): the more diverse their range, the greater the likelihood that certain of their species will be able to withstand the total stress state of the market;

• external constraints: at the market price level is influenced by factors such as demand, supply, state regulation of prices and others.

The process of developing an industrial strategy for establishing prices for the products consists of a series of sequential steps: setting pricing objectives; demand assessment; study of the prices of competitors' products; choice of pricing method; consideration of factors that affect the establishment of the price; final establishment of prices.

Establish pricing goals. To develop an appropriate pricing strategy enterprise (company) must first determine the purpose, which in many ways can be seen already from the very positioning in the market of goods (works, services), and should be aimed at achieving the company's strategic challenges facing them in a particular market segment.

Assessment of demand. In general, the price and demand are inversely proportional, ie. E. With an increase in prices the demand falls, and vice versa. However, the nature of this relationship is not the same for different types of products, as higher prices for some of them can be seen as a significant improvement in their quality and lead to an increase in demand. But such a demand can only increase to a certain limit, and then begins to decrease again.

Demand for industrial products is studied on the basis of extensive information on its levels at different prices. Consequently, the assessment of the adequacy of supply and the establishment of the optimal product prices are largely determined by the level of development in the enterprise marketing information.

It must track separately the dynamics of demand for each product in terms of the level of prices for it, the intensity of promotional activities, mode of delivery, the degree of market saturation in this type of product, production or production-analogue-substitute. It is important to avoid overlapping of individual factors to get an objective assessment of the impact of each on the level of demand.

Examples according to the demand of the individual factors are shown in Fig. 4.

Fig. 4. Influence of individual factors on demand

Determine the nature of the influence of each factor allows you to find the optimal conditions to ensure the necessary demand, and consequently, the corresponding level of product prices.

Finally, to adequately assess the demand to take into account its sensitivity to changes in price. If a slight change in price leads to a significant change in demand, it is considered to be elastic. Such as inelastic demand, which does not undergo any significant changes in price fluctuations.

The degree of elasticity of demand on the individual product allows to adjust the price for it. So, if the demand is not elastic, the company may try to gradually increase the price of the products as long as it will not be reflected in an undesirable manner on its sales. However, this technique should not be abused, because you can undermine the loyalty of consumers. With elastic demand, especially if the company is not satisfied with the size of the current income is not more than would have been slightly lower the price to stimulate sales and thereby increase the size of the income.

The study of the price of competitors' products. Prices set by competitors, largely determine the pricing strategy of the company, so they must be carefully analyzed. Prices of industrial products and its quality should be in direct proportion, so consumers are choosing the company for service, seeking to compare first of all these indicators. Preference is given to the company that has prices more in line with the level of quality.

For the analysis of the enterprise competitors' products usually resort to expert estimations of quality indicators.

The quality of competitors' products and the availability of their prices can be assessed, learning of this opinion of consumers themselves.

Comparing the quality of performance and competitors' prices with those of the enterprise, employees of the marketing department have to draw certain conclusions about the direction of the developed pricing strategy. For this competition the prices are taken as the starting point of research. If the quality of competitors' products exceeds the corresponding figures of the enterprise, then talk about setting prices at the same level does not make sense. If the quality of the enterprise responsible about the quality offered by competitors, there is every reason for establishing the price close to the price of competitors. Thus, to develop elaborate pricing strategy pricing and product quality level of competition should be taken for the comparison base.

Selecting the method of pricing. Developing a pricing strategy, the company may choose one of the alternative pricing methods (see. Sec. 7).

Accounting for factors affecting the establishment of the price. The chosen method of pricing largely determines the pricing strategy of the enterprise, for the successful implementation of which must take into account a number of factors that affect pricing. These are the factors:

• image of the enterprise. They are largely determined by the price-fixing. The company offering its products to consumers must first of all take care of how it will look on the background of other enterprises, as will be perceived by consumers of its products. Company image is influenced by many factors, such as customer relationships, product quality and the price for it. Developing a pricing strategy, the company must take into account the perceived image of consumers, because the more its credibility, the more trust and popularity of its products;

• geography. Many companies have an extensive network of branches and present their products around the world. Therefore there is a need to focus especially on pricing strategy in the money markets of different countries (regions). The use of a single pricing strategy without regard to geographical factors can lead to significant losses, that somehow force the company to reconsider its approach to pricing;

• the impact of other market participants. In addition to the competition on pricing strategy of the company can pressure consumers, government. In many cases, in order to avoid conflicts with the consumers of their products and to maintain its image of the enterprise meet the wishes of consumers with respect to ongoing pricing policy. However, it should seek to avoid such "wishes", providing a flexible pricing strategy. If you still can not avoid such a delicate situation, before to take appropriate action, it is necessary to assess the qualitative and quantitative composition of consumers, putting forward any requirements, and depending on it to make reasonable adjustments in pricing strategy;

• price discounts. Many companies are actively using in their pricing strategies different price rebates designed to encourage the acquisition of industrial products in large volumes. Typically, these price discounts applied to large consumers of products. However, the establishment of discounts and allowances requires enterprises accurate analysis of their costs to the increase in sales volumes contributed to no reduction, and increased profits. The final establishment of the price. The chosen method of pricing largely determines the future price for industrial products, but ultimately set the price may differ materially from those suggested in advance. This is due to the presence of the above factors affecting the pricing. However, consideration of these factors, again, does not give even the final price, as well as the necessary analysis of some psychological parameters.

By setting the final price, you should make sure that it is available to consumers and at the same time emphasized the quality of the products. It is believed that consumers are more receptive to a price ending in an odd number. So, the price of 49 USD. perceived by the buyer has to be more than 40 UAH., and the price of 50 USD. - Has to be more than 50 UAH.

In addition, if the company intends to set a price higher than the prices for similar products of competitors, it should be done so that the excess is not turned fold. For example, it is not recommended to set the price in 1.5-2 times higher than the prices of competitors. Similarly, if an entity expects that the price should be lower than competitors' prices, it is expedient to establish a (of course, if resources permit) to the estimated decline was a multiple, for example, a third lower than prices of the main competitors. In this case, the consumer psychology will work much faster, fully pay for the initial costs.

Thus, after analyzing all significant factors, the company will be able to finally set the price for the goods they produce.