Price Management Essay Sample
Price management is an important part of a brand. As the price of an object determines its value to customers and the market position of the brand, it is indeed quite important. Moreover, it is safe to say every business activity is to make the price better and more likable for customers.
Therefore to understand this concept better we shall be looking at different aspects of price management. Obviously, to understand a concept first we must know its meaning. So we will be looking at the definition of price management. After which we will be discussing the importance of price management. Later on, in the sample essay, we will be looking at the different strategies and steps o the pricing procedure.
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What is price management?
Price management is the process of using all the data available and different perspectives to improve and make the best pricing decisions possible. Moreover, it helps optimize pricing according to market conditions in order to get the best outcome.
As we know price is one of the most affecting factors if not the most. Plus, it helps pricing stay relevant to the market and the competition. Furthermore, price management is also a major factor in gaining competitive advantage and a key factor concerning competitive strategies.
Importance of price management
As we discussed earlier price management helps optimize the pricing of service or product. Rather it is the process itself. Price management is important as it determines the pricing of an object and pricing of an object decides its value. Moreover, pricing affects customer’s decisions greatly. Since the price of a service or product is second to none. Therefore, Price management becomes a quite important part of the overall process.
In fact, pricing and price management In turn greatly impact the overall profit and revenue stream of the brand. Also, it won’t be wrong to say that everything in business works around the price of a service or product. From procurement to marketing, everything is based on improving the value of the product or service being sold.
Furthermore, even simple pricing changes can bring huge changes in profit, for better or for worse. Even 1% optimization of pricing can cause up to 11% change in profit figures. Nevertheless, we shall look at some price management strategies that can be used to further optimize pricing decisions and gain a higher profit margin.
Strategies of price management
Price strategies take into perspective all the factors, market, value of the company, customer interest, and try to make most of it. Moreover, there are five widely used pricing strategies that we will be discussing here. Naturally, each of the strategies has its merits and demerits. Nevertheless, the five price management strategies are as mentioned below:
- Competition-based pricing
- Cost-plus pricing
- Dynamic pricing
- Penetration pricing
- Price skimming
So these are the five strategies of price management. Now we shall discuss these in brief below:
As the name suggests, competition-based pricing focuses on optimizing prices according to competitors. Therefore, pricing decisions are heavily dependent upon market data and the pricing of a competitor’s product or services. So value or production cost of the product is highly neglected.
Moreover, this strategy let the brand control their market position. Plus it is easy to implement. The disadvantage being that this strategy company focuses only on competitive pricing and customer value is ignored.
According to this strategy, the price of a product is deicide by adding up all the costs used to make it market-ready, hence giving it the name. In simple words, the final cost of the product is based on the cost of raw material, manufacturing, transportation, and so on.
Nevertheless, this is a good strategy for the long term. However, it should not be applied in companies like software, music, and so on as their production cost is relatively higher.
In simple words we can say that in dynamic pricing priced is not fixed but rather flexible. Moreover, the price increases or decreases based on either segment or time. For example, dynamic segment pricing is used by companies like umber. As the price of the cab increases if the availability is low.
On the other hand, dynamic time pricing can be seen in sales-based companies. As these companies have to perform within a time period price of their services or products increases and decreases accordingly.
Penetration pricing strategies are used by companies that are new to the market. Because in this strategy, price is set below the expected price in order to penetrate the market and make a foothold.
After a position in the market is secured, the price can be readjusted accordingly. Moreover, newer brands use this strategy to capture customer’s attention.
In this strategy, the price of newly launched products is set quite high, which leverages market demand after this price is decreased based on the later demand. This is known as price skimming. In simple words, buying the product at its initial high price is seen as a privilege. This strategy is seen being used in the marketing of plays stations, cars, apple iPhone, and so on.
Steps of pricing procedure in price management
In this paragraph, we shall discuss the steps of optimizing pricing in price management. As we saw earlier pricing of a product or service determines it value. Plus, price management also helps capture market position and optimize profits. Therefore, one must know the steps of the pricing procedure.
Moving on to the steps of the pricing procedure is as mentioned below:
- Know your audience: you should identify and understand who your target audience is in order to plan accordingly.
- Research: before deciding on the price you should research all the market and competitors thoroughly.
- Calculate the hard cost: Hard cost means the cost of making the product market-ready. This involves raw material, production, labor, and so on.
- Business goals: determining the goal of the brand is important to making pricing decisions. So goal must be realized before making a move.
- Use correct pricing strategy: As we discussed above there are five widely used price management strategies. Therefore, according to companies’ needs right strategies must be used.
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Nevertheless, if you liked this sample essay on the topic of price management you read more like this on the topic of management on our website. An example is a strategic procurement, competition strategy, supply chain management, and many more. Visit our site today!
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