Setting Prices: Balancing Cost, Distribution & Profit - Paper Example

Introduction

Most companies suffer the problem of pricing in the urge to maintain reasonable prices that do not discourage customers and ensures that a company gets maximum profit. Pricing decisions are influenced by different means, some of which include the cost of production of an item, channels of distribution of the product, and finally, the company’s objectives. Generally, the cost of production of a product is the main factor that determines the pricing range. However, prices of some products tend to change over and over again, and this is due to variability in the materials that are used to make different products. Other factors, such as the demand for a product, the competition level consumer behavior and perception about the product, and the market segment affect the price of products. In this project, market forces that influence the pricing and decision making in a company, overall economic struggles that affect business owners, local economic trends, and competition analysis that affect pricing are discussed.

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Market Forces Affecting Pricing and Decision Making

The company's objectives are a significant influence in deciding the pricing rates of a company’s products Gerlick & Liozu, 2020). For instance, if a company targets to get an absolute value to satisfy a given margin within a specified period, then the cost of their supplement may be higher.

Channels of Distribution

The way a product is delivered to customers affects the pricing of a product. A company is entitled to try out ideas that are less used by competitors. However, the competition of a product may be due to some other factors such as quality and convenience. Therefore, for a company achieve its success, more convenient ways, more so the cheaper ones should be considered to keep the pricing rates steady and manage more customers

Economic UPS and Downs That Affect Financial Strategies in a Company

Financial plans may be faced by ups and downs that affect a smooth business running. The business cycle affects the pricing since it involves fluctuations in prices at particular times. Economic ups and downs explain the up and down swings of product prices, the off-peak, and peak seasons that a company experience (Chernew & Pany, 2020). Moreover, there are some trends in the business that affects pricing rates. Some market trends include the development of new markets, differences in population growth, the development of new technology and increased competition. The ever-increasing emerging markets enable business owners to spot an available market, and have the ability to research on the economic system of the market and, the interests on products to ensure that products get a ready market. Besides, the demographic shifts affect the products’ prices in that, and if a large number of people occupy an area, this means that the market is broad and product prices may be high that a scarcely populated area. The new technology trend affects business owners because most processes are eased, and therefore, more products are distributed, leading to more profit gains. On the other hand, if the technology is very costly and less effective, product prices may be higher to pay up the cost of the technology service used. Also, competition from similar companies should be reduced to ensure more sales. If the company charges lower prices on their products, it is likely to get more customers that its competitors.

Impacts of Local Trends in Business

Some local business trends, such as employment and wage rates, consumer confidence, and change in the price of similar products, affect a product's supply and demand, equilibrium prices, and business decisions. The employment and wage rate shows that if people living in a particular area are employed, then products may still achieve a higher market regardless of higher prices charged. Nevertheless, consumer confidence in a product determines whether they will purchase it or not (Nayak & Kumar, 2020) Consumers understand that the quantity of a product may affect its price and therefore, if consumers expect prices to lower within a particular time, they may tend to purchase less of not purchase products when the quantity is high. As a result, it may fluctuate according to customers’ expectations and confidence. Besides, a change in the price of similar products affects the demand and supply of a product. For example, related products are sold at a low price, which means that most people will prefer cheaper products that will save them more funds. Lower prices increase the demand for a product and hence, is a product that is similar to another product is sold cheaply; the other products demand becomes low.

Factors That Affect Price Based on Price Elasticity

Some factors that leads to price elasticity include the cost of producing a new product and the willingness of consumers to use the product, peak and off-peak demand, whether products are subject to frequent consumption and, the number of close substitutes (Shahab, Riaz, & Ntim, 2019). The cost of switching between products affects pricing in that some capital is required in producing a new product that will be convenient for users. Moreover, there are times when the degree of necessity of a product rises, and hence the demand for a product increase. When a product's demand is high, its price may be high as compared to when the market is low. The off-peak and peak periods also lead to price elasticity. The peak period is when a product is highly demanded, and more sales are made. Mostly during peak seasons, the cost of goods may be high than during the off-peak periods.

Revenue, Cost, and Operating Income

Operating income in the range of the profits that a business earns after deduction of the operating expenses. The analysis of operating income enables business owners to range the business's general operations company since it is the final gain that is calculated. Taxes and other operations that reduce the ultimate benefits are calculated, and the performance of the business ranged. There are different ways to ensure that a company runs successfully; for instance, to avoid high competition rates, all problems that can be solved by cunning competitors should be resolved following customer's views. More concerns are likely to be addressed if consumers give a picture of the preference that they require.

Nevertheless, import tariffs affect the price of products. Prices of imported goods tend to be higher due to the competition of domestic producers (Obeng-Ahenkora, & Danso, 2020). Besides, the efficiency of assets reduces due to existing companies that cannot cope with the competition. The inefficiency in tariffs leads to increases products prices.

Conclusion

In conclusion, the pricing criteria in any company determined by different factors. Different decisions should be considered for the management of any company to be successful. Some market forces that affect the prices of goods have been discussed in this essay. Moreover, a business owner is entitled to make vital decisions whose applications will have a positive impact on consumers. Potentially increasing and decreasing costs depending on peak and off-peak periods requires keen supervision to ensure that customers are conveniently served as per their budgets on products.

References

Chernew, M., Dafny, L., & Pany, M. (2020). A Proposal to Cap Provider Prices and Price Growth in the Commercial Health Care Market. Policy proposal, 8.

Gerlick, J. A., & Liozu, S. M. (2020). Ethical and legal considerations of artificial intelligence and algorithmic decision-making in personalized pricing. Journal of Revenue and Pricing Management, 1-14

Nayak, R., & Kumar, Y. (2020). Impact of Heuristic Bias and Prospect Bias on Share Market Investment Decision Making. Studies in Indian Place Names, 40(26), 199-226.

Obeng-Ahenkora, N. K., & Danso, H. (2020). Principal component analysis of factors influencing pricing decisions of building materials in Ghana. International Journal of Construction Management, 20(2), 122-129.

Shahab, Y., Ye, Z., Riaz, Y., & Ntim, C. G. (2019). Individual’s financial investment decision-making in reward-based crowdfunding: Evidence from China. Applied Economics Letters, 26(4), 261-266.