Strategic Pricing Methods and Considerations
Topic 6: Pricing Strategies
Price is the sum of all values that customers give up to gain the benefits of having or using a product or service. Price is directly related to value; customers are willing to pay higher prices for products that provide higher value.
Methods for Setting Prices
In the economic world, we have several methods to set prices:
- Based on Costs
- Markup Pricing
Price = Total Unit Cost + Markup
This involves calculating the price by first determining the cost of producing one unit of product
- Markup Pricing
Understanding Economics: Principles and Processes
Item 1: Understanding Basic Economic Concepts
Positive Economy: Describes and studies reality as individual and collective behavior.
Economic Rules: Should be the economy that sets the rules.
The Factors of Production
- Land (or Nature Factor): Provides us with resources. Land is durable and can be exploited.
- Labor: The most productive factor, requiring human intervention. It involves physical and mental effort.
- Capital: Financial. Two types:
- Funds the company has for its employees or investments.
- Capital
Essential Business Concepts and Terminology
Adding Value
A process through which a business increases the worth of the resources included in production so that customers perceive the product to be worth more than the cost of the inputs.
Advisor
An external contact of a business that provides support and advice, sometimes for free.
Aims
Long-term goals a business can work towards.
Bank Loan
A fixed amount loan from a bank which is generally used to finance long-term assets.
Bank Overdraft
Borrowings from a bank on a current account which are payable
Read MoreEconomics, Money, and Trade: Key Concepts and Theories
Institutions
Social arrangements created to satisfy long-term needs. Adam Smith studied various institutions, including language, morals, justice, property rights, division of labor, money, and markets. He believed that in times of commercial interdependence, a laissez-faire (let alone) policy was the most appropriate approach for governing authorities.
Economics
The social science that studies the production, distribution, and consumption of goods and services.
Money
Any object or record accepted as
Read MoreUnderstanding Globalisation, Development, and Economic Indicators
Globalisation: Advantages and Disadvantages
Today, goods are made and sold all over the world, thanks to globalisation. We are interconnected.
- Companies buy cheap goods from other countries (underdeveloped countries).
- Larger market access.
- Job creation.
- Cheaper products for consumers (e.g., from China).
Disadvantages of Globalisation
- Unemployment in some countries because companies move their factories to places with cheaper labor.
- Increased environmental problems, as underdeveloped countries often have
Effective Communication and Distribution Strategies
Communication
The set of activities aimed at increasing sales seeks to highlight the product, enhance corporate image, and encourage purchases. This is performed using different communication techniques:
- Advertising
- Sales Promotion
- Personal Selling
- Public Relations
- Merchandising
Advertising
Transmitting a message to inform about a product, on one hand, and later persuade the consumer to purchase it through a communication medium.
- Mailing: More personalized.
- Advertising Campaign: Usually performed by advertising