Sales managers are often willing to provide key clients any discounts, especially if sales are falling. If such initiatives are not stopped in time, they can result in serious losses for the company. Reasonable restriction - setting the minimum allowable selling price.
Evaluate the effectiveness of pricing policy
Advantages and disadvantages
The main advantage of the solution is a simple and affordable way to calculate prices, below which it is not safe for the company to give in to customers. The main thing is not to take the result obtained once as a dogma and recalculate prices in response to any changes in the market.
Effectiveness of pricing policy
The effectiveness of a company's pricing policy can be assessed by how much revenue compensates for sales costs. The minimum allowable selling price should cover the costs of purchasing the product from the manufacturer or supplier, as well as the variable costs of selling it. This is the so-called management cost (break-even selling price), calculated by the formula. It deliberately ignores fixed costs, which will be offset by marginal profit from the sale of other goods.
Formula. Calculation of the minimum allowable selling price
| Notation used | Decryption | Units | Data source |
| The minimum allowable selling price or management cost of one package (unit) of goods in the trading division of the company | rub. | ||
| AP | Purchase price of a unit of goods | rub. | Current supplier prices |
| PZ | Variable selling costs per unit | rub. | accounting or management accounting. The composition of variable costs is determined individually depending on the characteristics of a particular company |
In formula 1, when determining the purchase price, it is better to focus on the current prices of suppliers, because it is for them that you will have to replenish inventory.
As for the variable costs of sale, they will first need to be allocated, and then attributed to the unit of goods. Knowing the features of the company's work, it is not difficult to determine the composition of variable costs. Usually, piecework wages for movers, freight forwarders, bonuses for purchasing and sales managers, as well as the cost of transporting goods depend on the volume of shipments.
The minimum allowable prices are known, it remains to develop the rules for their application in practice: under what conditions sales managers have the right to release goods at them and how often, who will control this and how regularly.
Price in the marketing mix
Pricing policy is becoming a key strategic tool in the face of increasing competition in the market and expanding consumer choice. The price is considered by the enterprise on 3 levels.
1. On general economic level price is first and foremost exchange regulator, a mechanism for coordinating supply and demand, exchange value in monetary terms.
2. On corporate level price is the most important factor in ensuring long-term profitability, a tool for covering costs and making a profit, an effective means of competition.
3. On marketing level the price is considered as a tool for the formation "perceived value" goods, the most important positioning factor, as information for consumers, as an indicator of the company's marketing efforts.
Price is an important component in the overall system of marketing tools. It performs the function of conveying the value of the product, forms the perceived quality of the product. Pricing policy is closely related to the product, distribution and communication policy of the enterprise.
Price and product.
Individual product level.
Price reflects beneficial features goods for consumers. The total utility of a good is equal to the sum generic and added utility.
Purchase Attractiveness = Generic utility + Added utility
Price + Other costs.
generic utility- standard characteristics of competing products of a certain group of products (for example, the functional utility of shoes, TV, legal services, etc.). The consumer can choose any product or service, guided mainly by their own costs.
Added utility- additional instrumental or emotional utility. The more added utility, the more attractive this product and hence a higher price. This is due to the fact that the price is perceived as an indicator of quality and as an indicator of prestige.
If buyers are looking for the highest quality in a product that money can buy, then they will be much more sensitive to product features than they are to price. They believe the high price is justification High Quality, and are willing to pay even more if the quality is even higher. Possession of first-class goods gives the buyer confidence in the correctness of his choice and a sense of his own well-being.
Level of the whole product line.
The simplest example of this kind of relationship is the setting of prices at gas stations. Gasoline of the 76th, 92nd and 95th brand is on sale, the 76th brand is intended only for a certain class of engines. Interchangeability is possible only at the level of the 92nd and 95th brands. The more expensive the 95th mark, the greater the demand for the 92nd mark. Conversely, the closer the prices for the indicated brands, the more demand will switch to the 95th brand.
Price and distribution.
Depends on the type of distribution. Direct or indirect. How many levels in the distribution channel.
Merchandising. Place of sale of goods.
Increasing buyers' awareness of price levels increases their sensitivity to those price levels. The price is also influenced by the PR system, corporate identity, etc.
The marketing approach to pricing lies in the fact that the price requested by the enterprise is based not on rational calculation (as the classical price theory suggests), but on the search for an “optimal” equilibrium market value, which should take into account the interests of the main market participants that influence its formation:
1. Manufacturer I cover the cost of producing the product.
2. Competitor - market price.
3. Consumer - consumer value of the goods
This search involves the analysis of market information, competitive environment, risk factors and is based on the so-called “magic triangle” of S.Kh. Tukker
The relevance of the development and implementation of an effective pricing policy is determined by the following functions:
R price pretty much generates the level of demand and, Consequently, volume of sales. Too high or low price can negatively affect the market prospects of the product;
R price directly determines the profitability of all activities of the enterprise, not only setting the level of profit, but also fixing (through sales volume) the conditions under which the cost recovery is achieved within a given time horizon;
R price substantially affects general perception product and its positioning in the eyes of potential buyers. The latter react to the price as a signal characterizing the quality of the goods. The price, therefore, is one of the components of the brand image;
R price is a forced point of contact between competitors and therefore, to a greater extent than other elements of the marketing mix, can serve as a basis for comparison of competing products or brands;
R acceleration scientific and technological progress and shortening life cycle goods dictate the need for a thorough justification of the initial price, since errors in its establishment can cross out the market prospects of the goods;
R a large variety of poorly differentiated brands and products, expanding the product range increase the value correct price positioning: even slight price fluctuations can significantly change the perception of the product by the market;
R legal and social regulation(for example, price control, marginal surcharges, etc.) significantly limits independence of the enterprise in the price sphere.
Thus, the price can significantly increase the economic efficiency of the enterprise.
The price belongs to the category of controllable marketing factors, therefore, the careful development of a pricing policy for setting and changing prices over time, for goods and markets is the most important task of the enterprise.
When developing a pricing policy, it is extremely important to ensure that it is closely linked
s with a common marketing enterprise strategy,
s planning production of goods,
s identifying consumer needs,
s sales organization,
s sales promotion.
Pricing policies should be continually reviewed on the basis of actual results achieved and adjusted as necessary, which implies
s flexible price changes in accordance with the changing market situation,
s ensuring the interconnection of prices for goods within the range,
s making decisions about price modifications.
The price must be set in such a way that,
s meet the needs and requirements of customers,
s to realize all the goals of the enterprise in a particular market, to ensure that it receives sufficient income.
At the same time, it is extremely important to take into account that the price should not be considered as the only marketing tool that generates income. All elements of the marketing mix, and only in interaction and interconnection, ensure the achievement of the goals of the enterprise.
The formation of a pricing policy includes a number of successive stages:
1) identification of factors that determine the effectiveness of pricing policy;
2) setting pricing goals;
3) choice of pricing method;
4) substantiation and implementation of the pricing strategy.
Factors that determine the effectiveness of pricing policy
Being a quantitative category, the price is formed under the influence of many factors that can be divided into two groups: internal and external.
Internal factors.
Internal factors depend on the activities of the enterprise itself and the characteristics of the goods it supplies to the market.
1. Goods with special properties will certainly have a higher price, reflecting its quality and uniqueness.
2. The cost of producing a product. Goods of small-scale and individual production, as a rule, have a higher cost and, accordingly, a price. For the goods mass production relatively low prices. With frequent and intense changes in technology, the product will have a higher price.
3. Orientation marketing activities businesses in multiple market segments makes it necessary to differentiate prices, adapt them to the requirements various categories buyers.
4. In addition, the price is most directly related to product life cycle. Most often, goods have a higher price for a short life cycle and a relatively low price for a long one. Moreover, the concept of the life cycle of a product predetermines the need to carry out not one, but several pricing strategies during this entire period, each of which should be constituent part general marketing strategy enterprises.
External factors.
In many ways, decisions to establish a particular price are determined by factors external to the enterprise.
Influence external factors at the set price.
P Significantly limit the freedom of the enterprise in setting prices.
P Do not have a noticeable effect on the freedom of pricing.
P Significantly expand it.
Therefore, the end result of assessing external factors when choosing a pricing strategy should be to determine the boundaries of the freedom of the enterprise in setting prices for the goods offered.
The main external factors that determine the conditions for the development and implementation of an effective pricing strategy include the competitive situation in the market, consumers, participants in distribution channels, and the state.
1. The competitive situation in the market and the marketing activity of competitors.
In this case, the formation of prices is determined by the structure of the market.
Yes, under the conditions perfect (pure) competition the enterprise has practically no freedom in relation to setting the price: prices in fact already given by the market and the company is forced to adapt to them. In order to improve its position, it can only change the volume of supplies, reducing or increasing the volume of production, depending on the attractiveness of the market price. The focus is on reducing costs in order to maintain an acceptable level of profitability.
In conditions monopoly, when there is one seller on the market, the situation is different. In this case, the price is formed by the monopolist simultaneously with the determination of the volume of supply of goods. This takes into account costs, demand and the degree of state influence on price setting in such a market structure.
Market prices monopolistic competition vary over a wide range. The company independently determines the price of its product based on the existing structure of demand, competitors' prices and own costs. For achievement competitive advantage widely used methods of price competition.
Under the conditions of an oligopoly, pricing is carried out with the dominant role of several enterprises that are forced to reckon with the reaction of their competitors through adjusting production and sales volumes, the possibility of a “price war”, division of sales markets, etc.
Purpose of activity commercial enterprise- making profit. The company receives income from the sale of goods and services. Sale can be both wholesale and retail. The key factor influencing the success of the implementation is the cost of the product being sold. Determining the cost depends on the pricing policy of the enterprise.
The concept of the pricing policy of the enterprise
Pricing policy (CP) is a set of principles for establishing a certain cost for goods and services. it marketing tool, which affects the success of sales and positioning of the company. The main objective of the pricing policy is to obtain a stable profit from sales, to ensure competitiveness. There can be many side tasks. They depend on the characteristics of the functioning of the company. When forming the CP, the following points are taken into account:
- The impact of cost on the competitiveness of the company.
- Organization's chances of winning a price war.
- The reasonableness of the chosen pricing policy for new products.
- Change in cost based on the life cycle of the product.
- Possibility to set different base prices.
To form the value, it is allowed to choose a company similar in characteristics to the enterprise. It is evaluated for the ratio of costs to profits.
The main goals of pricing policy
Consider the main goals of the company's pricing policy:
- continuation of the organization. The enterprise carries out its activities under the influence of such threats as excess capacity, high competition, and a sharp change in demand. Some of these risks can be combated by lowering the cost. However, the price reduction must be such that the income received covers the costs. This CPU goal is considered short term.
- Short-term profit increase. Sometimes the cost of a product changes to maximize profit. Often such a goal is set within the framework of a transitional economy. This is a short term task. In the long term, such a goal is not used, since a significant increase in cost will not allow you to win in the competition.
- Short term increase in sales. In this case, the cost of goods, on the contrary, decreases. Attractive price allows you to increase sales volume. An alternative option is to assign commissions for intermediaries, which also helps to increase sales. This measure will allow you to extract maximum profit, as well as gain market share.
- "Cream skimming". This measure is relevant if the company sells new products. In this case, the highest value is assigned. If sales begin to fall, the cost is reduced slightly to ensure turnover.
- Long-term profit increase. One of the current strategies is the formation of the image of a company that produces exceptionally high-quality products. If the client is confident in the quality of the product, he will be ready to purchase it at a high cost. This will allow you to achieve long-term profit maximization.
To establish an optimal pricing policy, one goal is set. It is selected depending on the characteristics of a particular enterprise, its competitors.
Varieties of pricing policy
In practice, these forms of pricing policy are applied:
- Politics high prices. When a new product appears on the market, the highest price is set. This is relevant only for really new products that are in demand and are protected by a patent. The cost gradually decreases in the event that a decrease in demand is noticed.
- Politics low prices. Relevant if a company needs to quickly enter the market and win its share. Suitable for stimulating demand. It is used in markets with increased production volume, increased elasticity of demand. The company's costs are covered by the fact that sales of goods at a low cost increase as much as possible.
- Differentiated pricing policy. The average cost of production changes under the influence of allowances, discounts. Each segment of consumers is offered a separate price for the product.
- Preferential price policy. The company gets the opportunity to attract new customers through preferential offers. This method is suitable for market expansion.
- Flexible pricing policy. The cost is determined depending on the capabilities of consumers. Changes quite often.
- Stable price policy. In this case, prices do not change for a long time. Suitable for everyday goods.
Before setting a specific pricing policy, you need to carefully monitor changes in the prices of goods on the market. Before choosing a strategy, it is necessary to take into account internal (company-specific) and external (market characteristics) factors.
IMPORTANT! The selected policy changes from time to time. You cannot choose one strategy and use it for decades. Policy is determined depending on external factors that are constantly changing.
Factors affecting the pricing policy of the enterprise
There is no objectively ideal pricing policy. Its effectiveness is determined depending on a number of factors. Consider the factors affecting the CPU:
- The type of market in which the company operates. If this is the market perfect competition, the role of the CPU is minimal, as the company has no power over the price. The role of price policy in a monopoly is also minimal.
- elasticity of demand. It can be direct, cross, dependent on income.
- The size of the company, the number of divisions in it, the available capital.
- If an organization produces consumer products, it has a greater impact on the CPU, in contrast to companies engaged in the production of manufacturing goods.
- The freedom to influence the price of small companies is limited.
- Distribution channels for goods. The manufacturer of products can sell the goods himself, as well as use intermediaries for this. In the first case, the company's impact on the CPU is higher.
- market segment.
- Geographic area.
- presence of inflation.
- The amount of taxes.
- The degree of interference in the activities of the company by state bodies.
The effectiveness of the pricing policy depends not only on the efforts of the company, but also on many other enterprises. Not all organizations can influence the cost. The lowest efficiency of the CP is observed in small companies with high taxation, in whose activities state structures interfere.
How to determine the effectiveness of pricing policy?
A company's CPU efficiency is determined in the following ways:
- Compliance with the chosen pricing policy financial strategy organizations.
- Realization of the set goals. For example, a company wants to maximize sales performance. An appropriate pricing policy is selected. Over time, it is analyzed how much the sales market has increased. If the indicator has reached the set goals, the selected CPU is considered effective.
- The success of product sales. The main purpose of using the CPU is to increase product sales. If the products cannot be sold at the established cost, the pricing policy cannot be called effective.
- Flexibility of pricing policy.
- The impact of established prices on profitability indicators.
- The impact of the CPU on the competitiveness of the organization, strengthening its position in the market.
- Ensuring financial stability.
- Adequacy of cost to product quality.
- Price balance.
When analyzing the effectiveness of the pricing policy, it is necessary to take into account the main indicators of the success of the enterprise: profitability, sales level, competitiveness, increase in income.
Pricing policy is not a discipline or a science, it is only an element of the most important strategies of a company, such as economic, financial, marketing, commercial, tax, assortment policy, commodity, etc.
Remark 1
Pricing policy is a set of pricing strategies of the company and tactics for their implementation.
Price increase in pricing policy
Pricing policy indicators may change due to an increase in prices for the company's goods:
- Special overpricing of goods. In this case, the manufacturer assumes full responsibility for such activities, he is aware that an increase in the price of the product will be perceived negatively by buyers, as well as sales agents etc. But here the management of the company is clearly aware that by raising the price by at least a few percent, this will lead to a significant increase in profits. Here, a clear and correct calculation of this price move is necessary, otherwise it can lead to a sharp decrease in sales;
- Sharp increase full cost produced goods. Most often, the manufacturer does not want to increase the cost of its products, but is forced to do so due to various trends: rising inflation in the country, an increase in the price of raw materials by service providers, an increase in staff wages, etc. The most serious problem for the enterprise is stable inflation, since this process proceeds independently of the company's activities, which leads the latter into a difficult and hopeless situation. The result of this is an increase in the prices of the company's goods;
- Increasing demand for a product. Another problem of the modern pricing market. If the product is actively in demand for a sufficiently long time, then the manufacturer at some point raises the price of the product, but this can lead to a decrease in purchasing power, simply stretched out in time, and when consumers are satiated or the product is a competitor, then sales will begin to fall sharply.
Price reduction in pricing policy
Pricing policy indicators may change due to a decrease in prices for the company's goods:
- Partial load production capacity companies. The production of goods is carried out incompletely, since the demand for the goods does not exceed the supply on the market, in view of this, the company's management takes forced measures to reduce the price of its goods in order to increase demand and load production capacities;
- Fierce price competition. There are many goods on the market of similar purpose and quality, in view of this, the manufacturer is forced to use the method of fighting competitors with the help of pricing policy, or rather its reduction, in order to increase the demand for goods.
Pricing indicators
The pricing policy of the enterprise has its own purpose, which, one way or another, leads to the main results of the company's activities. end results The activities of the company are considered such indicators as:
- Revenue. This is the entire income of the company for a certain period of time. Most often in accounting, when analyzing all the final indicators, the reporting period is used - the calendar year;
- Profit. This is an indicator of the company's performance over a certain period of time, which shows how much free cash the company will receive from its core activities;
- Profitability. This indicator means how effectively all the company's resources are used to achieve the goals.
The pricing policy of the company is designed to increase all these indicators. If, following the results of the past calendar year, one or more indicators have negative trends, this means that somewhere at some point in time an illiterate managerial decision, including this directly relates to pricing policy as the main sales tool.
It is prices that determine the structure of production and have a decisive influence on the movement material flows distribution of commodity weight level of profitability of the enterprise. Proper pricing methodology, reasonable pricing tactics, and the consistent implementation of a well-founded pricing strategy are essential ingredients for the success of any commercial enterprise in a tough market environment...
Share work on social networks
If this work does not suit you, there is a list of similar works at the bottom of the page. You can also use the search button
Other related works that may interest you.vshm> |
|||
| 16743. | Ways to improve the effectiveness of modern demographic policy | 14.74KB | |
| And as the experience of countries with similar problems in the field of fertility shows, one of the main demographic policy strategies is to create conditions for a combination of parenthood and employment. Harmonization of policy in the field of fertility and employment is extremely relevant for Russia as well. According to a sociological survey, women want to combine motherhood and employment; they are ready for the birth of a second child only if they retain the opportunity to work in the field of paid employment. The employment factor competes with material... | |||
| 10149. | Price policy. Objectives of pricing policy and ways to solve them. Typical approaches to determining the price of goods. The system of discounts and allowances as a tool for reconciling the interests of the enterprise and the consumer | 10.23KB | |
| Typical approaches to determining the price of goods. Therefore, the value of the market price depends not so much on the company's own costs, but on the level of competition in the market and the general state of the economy, etc. The pricing strategy allows you to determine the price level and marginal prices for individual product groups. In some cases, it is necessary to take into account the formed prices in the market. | |||
| 5662. | Experience in organizing and ways to improve the efficiency of meat processing at EMK LLC | 93.77KB | |
| Product suppliers. Analysis and evaluation of the effectiveness of the organization of processing and marketing of products. Organization of product processing. Production and cost various kinds products. | |||
| 9919. | Ways to improve the efficiency of an enterprise on the example of Stroydom LLC | 181.08KB | |
| Significance this project for LLC "Stroydom" is determined by the problems existing at the enterprise with the sale of manufactured products and the reduction of orders for construction. With the help of this project, the company will be able to increase economic indicators their activities and improve their financial condition. | |||
| 15633. | Ways to improve the efficiency of the enterprise (on the example of JSC "SAAZ") | 152.3KB | |
| Measures to improve the use of working capital in OAO SAAZ. It is at the enterprise that the production of products is carried out, various kinds of services are provided, there is a direct connection between the worker and the means of production. Calculations of production efficiency are carried out according to a system of indicators that are combined into the following groups: economic efficiency social production; - indicators of increasing the efficiency of labor use; ... | |||
| 4682. | Ways to improve the effectiveness of legal means to combat bribery | 110.78KB | |
| In practice, questions still arise: Is the attempt to receive a bribe punishable? What should be understood as extortion of a bribe? And other questions. Secondly, it is relevant to develop specific measures to improve the current criminal legislation establishing liability for taking a bribe... | |||
| 15272. | WORKING ASSETS OF THE ENTERPRISE. WAYS TO INCREASE THEIR EFFICIENCY | 1.05MB | |
| The introduction of policy into the activities of the use of OBS allows you to multiply profitability current assets, establish the need for sources of their financing, improve their turnover rates, as well as indicators of financial and economic activity, reduce the costs incurred in the maintenance of current assets, increase the revenue received. This is what determines the high demand for the topic chosen for research. | |||
| 19797. | Analysis of the efficiency of working capital and ways to improve it (on the example of JSC "SSGPO") | 141.72KB | |
| Working capital is an indispensable condition for the implementation of business activities by the enterprise. In fact, working capital is money advanced into working capital production assets and circulation funds, do not confuse them with money invested in fixed assets. | |||
| 948. | Ways to improve the efficiency of commercial work in a retail trade organization | 100.41KB | |
| Theoretical basis efficacy studies commercial activities commercial enterprise. Functions of the goal of the task of commercial activity of a retail trade organization. Commercial activity is one of the most important areas of human activity resulting from the division of labor. However, such a broad interpretation of commercial activity is not consistent with the previously outlined approach to commerce as trading processes for the implementation of acts of sale and purchase of goods. | |||
| 1210. | The personnel of the enterprise and ways to improve the efficiency of the use of the workforce | 150KB | |
| Since it is the human factor that largely affects the increase in labor productivity. Increasing the efficiency of the use of labor in the enterprise in many ways means increasing labor productivity. The factors of growth in labor productivity include: the level of development of science; organization of production; production experience; advanced training of workers; material and moral stimulation labor improvement and modernization of equipment. Stimulation of labor involves the creation of conditions for economic ... | |||
Layout of the house, plans of houses and cottages
Small Business - Home Production Ideas
History of JANOME. Sewing machines. Janome, Veritas, Pfaff Sewing machine janome manufacturer country
Working with the tattis system
Properties of copper and its application