In the market economy the business success of any company or entrepreneur mostly depends on the correctly chosen strategy and tactics of pricing on goods and services. Pricing is a rather difficult process because prices mostly depend on the situation in the market. The range of political, economic, psychological and social factors has a great influence on the price level. Today your price can be determined by the costs factor, and tomorrow its level will depend on the customer’s behavior.
However, nowadays the most part of entrepreneurs of our country has no necessary theoretical and practical knowledge of the complicated mechanism of goods and services pricing. As a result, establishing prices they often make serious mistakes that immediately reflects on the financial results, in some cases leads to suffering losses and sometimes even to the bankruptcy of a business (company).
To avoid this situation any economist and any entrepreneur must acquire the theory and practice of pricing.
All commercial and nonprofit organizations face the problem of determining prices for their goods and services. In the market economy pricing is a very difficult process which is influenced by plenty of different factors and based not only on the marketing recommendations. But nevertheless, the right choice of price strategy, approaches to the pricing for new and still manufactured goods and services in order to increase volumes of realization and commodity circulation, to enlarge production and firm the company’s positions in the market is one of the marketing functions.
Prices and the price policy are ones of the major components of the marketing activity, which importance is permanently rising in our days. Prices are in close dependence on other variables of the marketing and other firm’s activities. Final commercial results mostly depends on prices and it’s important to mention that in the long run correct or fault price policy brings positive or negative results of firm’s activity.
The essence of the correctly chosen price policy in the marketing is to fix and vary prices in dependence on a situation in the market in order to win a certain market share, provide the planed profits and solve other strategic and operative tasks. Working out the general price policy all decisions are gathered into an integrated system.
Stating a single price for all buyers is a comparatively new idea. It has been formed historically – a price was a result of the deal between a buyer and a seller. Usually sellers asked for a price higher than they counted to get first. In their turn buyers asked for a price lower than they were ready to pay. While dealing with each other they usually came to the price that was mutually acceptable to everyone. Common prices were widely admitted only to the end of 19 century with the appearance of large retail enterprises, which proclaimed “the strict policy of common prices” as they offered a huge variety of goods and employed a great number of employees.
Historically prices were the basic factors that determined a customer’s choice. This is still true for the third-world countries among the population groups living below the normal living standards. Nevertheless, for the last tens of years price factors such as sales stimulation, distribution of goods and services for the customers have obtained a certain influence on the consumer’s choice.
The way firms approach the pricing problems may vary. In small firms prices are usually determined by the higher leadership. In large companies department supervisors and assortment supervisors deal with the pricing problems. But still at this level the higher leadership determines the general targets of the price policy. The higher leadership also confirms prices offered by managers of the lower supervision. In space, railways, gas and oil industries companies often organize special pricing departments, which determine prices or help the others do it. Such employees as sales department managers, production supervisors, finance managers and accountants are those who also influence the price policy.
First of all a firm must determine what purposes it intends to reach with the help of the concrete goods. If the choice of a target sector of the market is well considered the approach to forming the marketing complex including pricing problems is quite evident. The pricing strategy is generally determined by decisions that were made concerning a certain position in the market. At the same time a firm can chase other targets. The clearer a firm’s idea of its target the easier to determine a price. There are plenty of examples in practice: providing survival of the firm, maximizing current profits, winning leading positions in the market reaching the high quality of commodities.