Pricing – necessity and challenge in business practice

Pricing – necessity and challenge in business practice

The industry is becoming smart, is constantly changing and pricing is gaining more and more more momentum for companies in addition to sales structure and advertising. Good pricing is becoming an important instrument for controlling pricing and is regarded as an important lever for determining the profitability of a company. How does pricing come about? Which solutions exist and how can pricing be optimized?

 

Pricing in companies 

Psychologists, philosophers, economists and even historians deal with the topic "price". Medium-size entrepreneurs ask themselves however, which factors they must consider for the determination of the price for their products and which components flow into a price determination. Pricing is therefore an integral component and a firm element of the marketing strategy of an enterprise, with which the conditions are determined on the basis different criteria. Pricing is crucial for the profitability of a company and the market value of its products and services. Once the products have been established, they can even be marketed at different prices (designer products or brand image).

 

Factors, elements and peculiarities of pricing in companies 

Pricing is performed by analyzing the market, demand, purchasing behavior, usage and competition in connection with the respective corporate and marketing strategy. Prices are determined by adding a margin to calculated full costs for products. The "Target Pricing" model accepts start-up losses and calculates prices based on the expected quantities and the resulting costs. 

Systematic pricing is based on the respective corporate strategy and determines its significance for pricing. The basis for pricing is derived from this strategy and implemented during pricing. Depending on which services and products the company manufactures, specific guidelines must be developed. However, if the corporate strategy changes, the pricing must also be adjusted. 

The pricing process is influenced by numerous parameters. Before pricing begins, the target group must be determined and assessed. In addition, the service or product must be recorded and described, whereby all costs incurred must be taken into account in an analysis. The next step is the identification of potential competitors, which can also be used to analyze the purchasing behavior of the target group. Once the price level of the product, the target group and their purchasing behavior have been determined, pricing can take place. 

For years there have been flat rates or package prices in various areas such as tourism, telecommunications and insurance, which can be easily predicted due to their simplicity. In addition, there are aspects such as great predictability, security and uncomplicated billing mechanisms.

 

Empirical study on the topic "Pricing processes within business practice 

Scientists from the Private University of Göttingen (PFH) were involved in a study on pricing. The authors analysed different aspects of pricing within companies of different sizes and industries. The study focused on the development of prices and their pricing. It clarifies potentials of the different design processes and offers solutions on how companies apply pricing correctly. 

The researchers used questionnaires from previous studies and summarized the components of pricing, research, strategy and controlling. Companies of different sizes were surveyed. A total of 1,418 companies received a questionnaire, 204 of which were returned. Only about 53 percent of companies with more than 5,000 employees have a written pricing strategy. Pricing itself is very important for 31 percent of the companies surveyed and very important for 14 percent. Pricing decisions are still in the hands of management. Price controlling develops from the analysis of contribution margin calculations relating to customers and products. 

The surveys also revealed that pricing does not seem to have the same significance within a company as other operational areas and is not structured and controlled with the same intensity. 

Pricing is an essential factor for the success of a company. If opportunities for a differentiated view are used, a competitive advantage is created. Management must constantly deal with the questions of pricing and implement this on the basis of their existing strategy. Pricing invents adaptation and is subject to constant change.

Date: 22 January 2019, 11:01 am
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