Price research

1. Philosophies and Importance of Price Research

Pricing decisions seem to be one of the most perplexed problems facing management. Price is closely related to the product itself. It is often difficult to gain a competitive advantage through pricing strategy; it is easy to be come non-competitive through poor pricing practices. It is possible to isolate pricing decisions; two broad areas can be separated. First, business firms are faced with the problem of establishing pricing policies and strategies. These are the broad guidelines under which more specific pricing activities take place. Second, managers are faced with the actual task of determining specific prices. The most important factors bearing on price policy decisions are external environmental elements and internal constraints. Research for policy decisions tends to rely on studies of industry structure and examination of internal secondary data. This research reveals the nature of price as a competitive variable and constraints on the flexibility of pricing.

New product pricing reflects the additional complexities with pricing a new product for the first time. Relevant issues here include the product and market characteristics (E.g. differences from existing offerings, ease of copying, patent protection); the choice of price strategy at the time of the launch and its adjustment over time (E.g. market skimming versus market penetration); and the integration of the new product pricing strategy with the promotional and distribution strategies adopted during introduction to the market. The challenge facing the decision maker when pricing a new product, there is often pressure to recuperate development and launching costs, both of which can be very substantial, within a short period in order to maintain a healthy cash flow and ensure a quick return on the investment linked with the new product. There is also pressure to ‘read’ the market correctly in order to ensure that the price set is likely to be accepted in the marketplace and not act as a barrier to the new product success. When pricing a new product, you must take into account potential responses by competitors both in the short-run (E.g. price reductions) and the medium term (E.g. counter-launch of a ‘me too’ or ‘later but better’ product). Attention has to be paid to dynamic effects, such as the future impact of the launching price on the rate of adoption and repeat purchase, the development of costs over time and the attraction of new entrants to the market. With regard to the specific pricing strategies linked with launching a new product in the market, a indication must be made for each product group, (a) the potential applicability of alternative new product pricing strategies and (b) the strategy they would consider ‘best’ for the group concerned. The four groups are competition matching, market skimming, market penetration and standard pricing. From an individual product group angle, the number of potentially applicable new product pricing strategies ranges from one to three. There is not a single product group for which all four new product-pricing strategies are considered relevant. The reason for this is that for the four groups of which standard pricing is deemed to be the best strategy; it is also seen as the one and only strategy that could potentially be applied. The distinctiveness of the product vis-à-vis competitive offerings and existing items in the firm’s range is the crucial factor affecting the launching price. New product pricing strategies are situation-specific, the choice of strategy depending upon the prevailing product situation in the market and the new product’s impact upon it. There is a variation in the perceived effectiveness of potential strategies, with ‘competition matching’ being the most popular strategy.

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2. Methodologies used in Price Research

Pricing methods describe the procedures used to arrive at prices that will hopefully satisfy the pricing objectives set by the firm. Among the key issues in this area are the various factors taken into account when setting prices (E.g. costs, competitors’ prices and customer expectations); the general types of pricing methods used (i.e. cost-, demand- or competition- oriented) and their specific implementation (E.g. full-cost versus conversion-cost versions of cost-oriented pricing); and the impact of external factors (E.g. trade association recommendations) on the adoption of particular methods in different industrial settings. Attention ...

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