For effective business organization you needhave a clear idea of what the price is, pricing factors, what are the principles for the pricing of goods and services. We will tell about how and from what the prices are formed, what functions they perform and how to correctly determine the adequate cost of production.
Concept of price
The basic element of the economic system is the price.In this concept are intertwined various problems and aspects that reflect the state of the economy and society. In the most general form, the price can be defined as the number of monetary units for which the seller is ready to transfer goods to the buyer.
In a market economy, the same goods cancost differently, and the price is an important regulator of relations between market entities, an instrument of competition. Its value is influenced by many pricing factors, and it consists of several components. The price is variable and subject to permanent changes. There are several types of prices: retail, wholesale, purchasing, contractual and other, but they all obey the unified law of formation and existence in the market.
Price Functions
The market economy is different from the regulatedthe fact that in it prices have the opportunity to freely implement all their functions. The leading tasks that are solved with the help of prices are stimulation, information, orientation, redistribution, and the establishment of a balance between supply and demand.
Продавец, оглашая цену, информирует покупателя о that he is ready to sell it for a certain amount of money, thereby orienting the potential consumer and other traders in the market situation and informing them of their intentions. The most important function of establishing a fixed cost of goods is to regulate the balance between supply and demand.
It is with the help of prices that manufacturers increaseor reduce the number of products. Lower demand usually leads to higher prices and vice versa. At the same time, pricing factors are a barrier to a discount, since only in exceptional cases, manufacturers can lower prices below the cost level.
Pricing process
Pricing is a complex process thatproceeds under the influence of various phenomena and events. It is usually carried out in a certain order. First, pricing goals are determined; they are closely related to the manufacturer’s strategic goals. So, if a company sees itself as an industry leader and wants to occupy a certain segment of the market, it seeks to set competitive prices for its goods.
Further, the main pricing factors are evaluated.external environment, explores the features and quantity indicators of demand, market size. It is impossible to form an adequate price for a service or product without estimating the cost of similar units from competitors, so the analysis of competitors' products and their cost is the next stage of pricing. After all the “incoming” data have been collected, it is necessary to choose pricing methods.
Usually the company has its own pricing.the policy that it adheres to over a long period. The final stage of this process is the final pricing. However, this is not the final stage, each company periodically analyzes the established prices and their compliance with the tasks at hand, and according to the results of the research, they can reduce or increase the value of their goods.
Pricing principles
The establishment of the value of a product or service is not only carried out according to a certain algorithm, but also carried out on the basis of basic principles. These include:
- The principle of scientific validity.Prices are not taken "from the ceiling", their establishment is preceded by a thorough analysis of the external and internal environment of the company. Also, the cost is determined in accordance with objective economic laws, in addition, it must be based on various pricing factors.
- The principle of focus. Price is always a tool for solving economic and social problems, so its formation should take into account the tasks.
- The principle of continuity.The pricing process does not end with the establishment of the value of the goods in a specific time period. The manufacturer monitors market trends and changes prices according to them.
- The principle of unity and control.Government agencies are constantly monitoring the pricing process, especially for socially significant goods and services. Even in a free market economy, the state is assigned the function of regulating the value of goods, to the greatest extent this applies to monopolistic industries: energy, transport, housing and communal services.
Types of factors affecting the price
All that affects the formation of the cost of goods,can be divided into external and internal environment. The first are various phenomena and events that a manufacturer cannot influence. For example, inflation, seasonality, politics and the like. The second is everything that depends on the actions of the company: costs, management, technology. Also, pricing factors include factors that are usually classified by subject: producer, consumer, government, competitors, product distribution channels. In a separate group allocate costs. They directly affect the size of the cost of production.
There is also a classification in which there are three groups of factors:
- non-opportunistic or basic, i.e. related to the stable state of the economy;
- opportunistic, which reflect the variability of the environment, these include factors of fashion, politics, unstable market trends, tastes and preferences of consumers;
- regulatory related to the activities of the state as an economic and social regulator.
The basic system of pricing factors
The main phenomena affecting the cost of goods are indicators that are observed in all markets. These include:
- Потребители.The price is in direct proportion to the demand, which, in turn, is determined by the behavior of the consumer. This group of factors includes such indicators as price elasticity, customer reactions to them, market saturation. Consumer activity is affected by the marketing activity of the manufacturer, which also entails a change in the value of the goods. The tastes and preferences of customers, their incomes, even the number of potential consumers matter on demand and, accordingly, on price.
- Costs.When setting prices for goods, the manufacturer determines its minimum size, which is caused by the costs that were incurred in the production of goods. Costs are fixed and variable. The first include taxes, wages, production service. The second group consists of the purchase of raw materials and technology, cost management, marketing.
- Деятельность правительства.In different markets, the state can influence prices by many methods. Some of them are characterized by fixed, tightly regulated prices, on others - the state only controls the observance of the principles of social justice.
- Product distribution channels.Analyzing the pricing factors, it should be noted the special importance of the activities of participants in the distribution channels. At each stage of product promotion from the manufacturer to the buyer the price may vary. The manufacturer usually seeks to retain control over prices, for which he has various tools. However, retail and wholesale prices are always different, it allows the product to move around in space and find its final buyer.
- Competitors.Any company seeks not only to fully cover its costs, but also to extract the maximum profit, but at the same time it has to focus on competitors. Since too high prices will scare off buyers.
Internal factors
Those factors on which the manufacturing companycan influence, it is accepted to call internal. This group includes everything related to cost management. The manufacturer has various opportunities to reduce costs by finding new partners, optimizing the production process and management.
Also internal pricing factors of demandrelated to marketing activities. The manufacturer can contribute to the growth of demand by conducting advertising campaigns, creating excitement, fashion. The internal factors also include the management of the nomenclature of goods. A manufacturer can produce similar products or products on one raw material, which helps to increase profitability and reduce prices for some products.
External factors
Явления, которые не зависят от деятельности manufacturer of the goods, called external. These include everything related to the national and global economy. Thus, the external pricing factors of real estate - is the state of the national economy. Only when it is stable, there is a steady demand for housing, which allows prices to rise.
Также к внешним факторам относят политику.If a country is in a state of war or a protracted conflict with other states, then this will necessarily affect all markets, consumer purchasing power and, ultimately, prices. External are the actions of the state in the field of price control.
Pricing Strategies
Given the different pricing factors, eachThe company chooses its way to the market, and this is realized in the choice of strategy. Traditionally, there are two groups of strategies: for new and for existing products. In each case, the manufacturer relies on the positioning of its product and the market segment.
Economists also identify two types of strategies forproduct that already exists in the market: a moving, falling price and a preferential price. Each pricing method is associated with a market and marketing strategy.
