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Pricing - Yerukhimovich IL

7.4. Setting prices based on current market prices

In pricing practice, this method is also called the "at the level of competition" method. In this case, the price is considered as a function of prices for similar products of competitors, and the main factors in determining prices are not the costs of production and demand, but the number and actions of competitors.

This method is quite simple and reliable. It is often realized as "following in the fairway," ie, when determining the price of its goods, the producer is guided by the prices of the firm that controls the largest share of the market. At the same time, a small mark-up or discount is possible, but the difference remains stable.

This general approach has various modifications to the setting of prices depending on specific conditions, primarily on the characteristics of the product and the type of market.

In conditions close to pure competition and homogeneous products, the price is set either at the level of the current market, or from considerations of competition - a little lower. This means that the company needs to analyze the level of its costs for the production and marketing of goods, rather than look for information on prices.

Approximately similar behavior of the seller on the oligopolistic market, where large firms request the same price for the goods, and the small ones "follow the leader", changing prices when the price leader changes them, and not depending on fluctuations in demand for their goods or Own costs. At the same time, in these conditions, companies (firms) try to better meet the needs of customers, improving their goods, delivery conditions and after-sales service. Depending on the degree of modification of the goods and additional costs, the producer can change prices. With similar improvements in the goods of other manufacturers, prices can again be leveled.

In the market of monopolistic competition, when many manufacturers offer products of the same purpose, the price for a particular product is set taking into account the prices of similar goods and the correlation of the parameters of these goods. For this purpose, the so-called parametric pricing methods are widely used, based on quantitative relationships between the price of the product and its consumer properties (quality parameters). Therefore, when setting prices, the commodity producer must analyze the quality of his goods and competitors' products, the price level in comparison with quality, and also take into account the possible behavior of buyers. In this analysis, so-called equilibrium prices are used, which cause an equal efficiency in the use of goods of different quality.

Consider this method of pricing on the example of prices and quality of rolled metal [12, p. 110].

Studying the market conditions, the revealed demand and supply of hire, prices for it allowed the manufacturer to come to the conclusion that setting for 1 ton of the rental price of 800 UAH. Will allow to sell 375 thousand tons of rolled metal. The index of the change in the most significant quality parameter relative to the rolled steel accepted for the standard is 0.88 (the quality of the product being examined is 12% lower than the reference product). Calculations showed that competitors' rental quality indices (two of them) are at the level of 0.82 and 0.91. The first competitor sells 1 ton of rolled metal at a price of 720 UAH, the second - 780 UAH. Consequently, the calculated price of own production exceeds the prices of competitors by 80 and 20 UAH, respectively.

Indices of the quality of rolled products of their own production relative to the rental of competitors in the first case are 1,073 (0,88: 0,82), in the second - 0,967 (0,88: 0,91).

Estimated premiums to the price of competitors due to different quality of rolled products are:

To the price of the first competitor - 720 (1,073 - 1) = 53 UAH;

To the price of the second - 780 (0.967 - 1) = 26 UAH.

Thus, the " equilibrium prices " of rolled products of their own production, which determine the same efficiency of using rolled products of different commodity producers, regardless of its quality and price, are 720 + 53 = 773 UAH, with the second competitor, 780 - 26 = 754 UAH. The increase in the estimated price, which is not conditioned by the quality of hire, is relative to the prices of competitors

80 - 53 = 800 - 773 = 27 UAH; 20 - (-26) = 800 - 754 = 46 UAH.

Due to this competitive situation, the sales volume at the market will significantly decrease at the estimated price of UAH 800. Therefore, further justification and, possibly, price adjustment are needed.

Suppose, additional study of the elasticity of demand, taking into account the changes in market conditions due to the actions of competitors, allowed to adjust the sales volume of rolled products depending on the price. Taking into account this forecast, depending on the price of 1 ton of hire, profits are calculated.

We give the initial data and calculations in the form of a table.

The greatest profit is achieved with the sale of 425 thousand tons of rolled metal at a price of 775 UAH. For 1 ton. Increase of the price of 1 ton of hire up to 800 UAH. Or reduce it to 750 UAH. Leads to a decrease in profits of about 10%.

The price is 775 hrn. For 1 ton of hire is very close to the "equilibrium" price compared to the first competitor for 2 UAH. (775 - 773) and exceeds it in comparison with the second competitor for 21 UAH. (775 - 754).

Considering the results of calculations, we come to the conclusion that the price of 1 ton of hire is 775 UAH. Most acceptable. It allows you to successfully compete with the first competitor. As for the second competitor, it would seem, it is necessary to reduce the price. However, as can be seen from the above calculations, this will lead to a decrease in profits. At the same time, setting a lower price than the second competitor can lead to a price reduction by this manufacturer. Such actions of competitors can have negative consequences: a further fall in sales volume, a forced decrease in the price of rolled products of own production. The end result of such actions is a decrease in profits.