Українська   Русский
DonNTU   Masters' portal

Abstract

Content

Introduction

Having passed all the stages of pricing policy formation, the enterprise takes the final decision on setting prices for the products, taking into account many factors: the type of the market where the products are sold; goals and objectives of the enterprise; opportunities for marketing activities; level of competition in the market, etc. Correctly formulated pricing policy is a dynamic process aimed at increasing the competitiveness of the company's products and the company itself on the market.

1. Theme urgency

The relevance of the study is due to the fact that prices determine the profitability of the company, its viability and financial stability. From them depends largely on the achievement of commercial results. True or erroneous pricing policy has a long-term impact on the entire activity of the enterprise's production and distribution complex. The correct pricing methodology, reasonable price tactics, consistent implementation of the updated pricing strategy are necessary components of the successful operation of any commercial enterprise in the harsh market conditions.

Formation of the objectives of price policy

Figure 1 – Formation of the objectives of price policy (animation: 4 frames, 5 cycles of repeating, 70 kilobytes)

2. The purpose and research tasks

The aim of the master's thesis is the development of theoretical provisions and the development of scientific and practical recommendations on the formation of the pricing policy of the enterprise.

To achieve this goal, the following tasks were set:

  1. Disclose the concept of price and price policy.
  2. Explore the stages and methods of pricing.
  3. Evaluate the value of pricing policy for the enterprise.
  4. To analyze the price policy of the enterprise.

Research object: Pricing policy and pricing mechanism.

Research subject: Pricing policy of the enterprise.

3. Stages of formation of a price policy of the enterprise

The formation of the pricing policy of the enterprise is one of the main elements of competitiveness. Otherwise, severe competition between manufacturers in the market may lead to a decrease in sales, a decrease in the level of profit, profitability and, as a result, a decline in the competitiveness of the goods and the enterprise as a whole.

3.1 Elaboration of the objectives of price policy

This is an integral part of the general purpose tree, an enterprise that has several levels of implementation: strategic objectives – aimed at global setting of issues and are oriented to a long-term period; tactical goals – allow to achieve medium-term results, the scope of decisions is strictly limited in accordance with strategic objectives; operational objectives – are of a local nature, aimed at implementing solutions in the short term (should correspond to tactical and strategic goals) [1].

For example, an enterprise within the pricing policy sets a strategic goal – leadership in introducing innovations to the market. This goal is transformed into tactical goals: the release of mainly novelties to the market, the diversification of prices depending on the novelty of the goods (novelties are sold at a higher price, older products at a lower price). These goals, in turn, are transformed into operational goals: for example, novelties for individual customer orders are delivered to the market at the highest price of X, new products of mass production at a lower price of Y, goods that have been on the market for several years, at low price Z with discounts.

The survival strategy on the market becomes the main one in cases when there is a situation of excess of goods, i.e. The supply exceeds the demand for products. In this case, the enterprise is forced to set low prices in order to stimulate consumer behavior with regard to increasing demand for goods. Often a system of price discounts is used depending on the volume of purchases (the larger the volume, the lower the price).

The fulfillment of the maximization of profit condition is based on the genetic features of the functioning of a commercial enterprise on the market, i.e. on obtaining the maximum income from the sale of products. The enterprise in this case analyzes the solvent and potential demand and the level of costs, depending on the different structure of market prices. Then it chooses the best option for the receipt of current profits covering a large share of the costs of output of products or services.

The goal of gaining leadership in terms of market share or increasing market share is related to the existing level of competitiveness of the enterprise. Strong in this respect, enterprises, as a rule, have a significant share of the market for products (ie, a greater volume of sales than competitors). This allows you to reduce the cost of producing goods due to economies of scale and to receive a stable profit in the long term. When an enterprise aims to increase its market share, it consciously goes to the maximum possible reduction in prices for products.

An enterprise that aims to gain leadership in setting prices on the market, most often operates in the oligopoly market and is a large corporation. This right belongs to the most competitive organization, which allows, without entering into collusion, to raise the general level of prices in this market.

Leadership in introducing innovations to the market implies setting the highest price for new high-quality goods in order to cover the costs of R&D. Such an enterprise will constantly engage in the creation of new products and the modernization of existing models in order to maximally satisfy the needs of consumers and withdraw the consumer surplus.

3.2 Analysis of pricing factors

Such analysis enables the enterprise to take into account in the price policy the reaction of buyers, suppliers, factors of production and competitors to price changes [2].

Evaluation of price and non-price components of demand for products allows us to identify the patterns of changes in consumption volume when the price, consumer income, prices for complementary and interchangeable goods, the number of buyers, tastes and preferences, national characteristics, consumer expectations change.

An analysis of the elasticity of demand helps the enterprise set prices depending on the importance of a particular product. So, in the situation of completely inelastic demand (for example, the auctioned goods at auction), the price can be set at the maximum level due to the uniqueness of the proposed product.

In case of inelastic demand (essential goods), the manufacturer-seller has to reduce the price, but insignificantly, since the demand for bread, salt, energy will always be. Elastic demand (for consumer goods) causes the company to pursue a more flexible price policy in the market, as rising prices can cause a drop in demand for the goods.

In this case, the company most often pursues a policy of price diversification, depending on the quality, novelty of the product, and so on. With absolutely inelastic demand (for example, the collective-farm market), the organization (enterprise) is forced to set a price at the marginal cost level. This is due to the production of standardized and mass products on the market with numerous competitors. Overstating the price in this case can lead to a decrease in sales volumes and a loss of part of the profit.

The analysis of price and non-price components of the offer allows to estimate the degree of influence of price changes on sales volumes of products, to find out the dependence of the supply of the enterprise on: the dynamics of prices for resources; influence of scientific and technological progress and changes in production technology; state policy in the field of taxation and subsidies; prices for interchangeable goods; changes in the number of suppliers in the market of this product; expectations of price changes on the part of producers [3].

Evaluation of the elasticity of supply helps the organization (enterprise) to navigate in time about the rational redistribution of resources, the volume of output and the establishment of prices for it. So, in the short run, the offer is inelastic. This is due to the fact that within the framework of the annual production program it is practically impossible to change the output volume, even if market prices for products change.

In the medium term (supply is elastic), there are opportunities to change the volume of output by improving production and internal reserves of resources. That is, there is already a small amount of time to assess the dynamics of market prices and adjust the production program. In the long run, the offer is completely elastic, which implies that the company has the opportunity to change all factors of production, conduct market research and build on their basis a program of output and a high-quality price policy.

Estimation of production costs for any enterprise is important insofar as it tries to cover the bulk of production costs with the help of proceeds from the sale of products. The enterprise on the market sets the price at which the costs for production, distribution and marketing, the rate of profit and insurance against market risks are laid [4].

As a result, in different types of market, the price is set in accordance with the established rules for the participants of this market, focusing on minimizing costs and maximizing profits. The definition of an optimal pricing policy depends to a large extent on the classification of costs (for example, on constant, variable, average and marginal), which makes it possible to use the marginal cost method in pricing, the method of regulating the profit mass based on cost reduction with revenue growth, unfavorable dynamics of market prices.

The analysis of the prices and products of competitors allows to find out the following. Despite the fact that the maximum price for products is determined by the demand (for example, world masterpieces put up for sale), and the minimum price by production costs, the price policy of the enterprise is significantly influenced by the price and commodity strategy of competitors.

Marketing services regularly conduct a comparative analysis of the quality of competitive products through a system of control purchases, customer surveys. Prices for similar products on the market are also compared. If the quality and price are approximately the same, then the company tries to use price and non-price methods of competition (for example, develops a system of discounts, organizing seasonal sales, activates promotions in direct form and in the form of lottery, lottery, present to buy, etc.).

Improving the quality of products, developing know-how allows you to create distinctive features of manufactured products and to protect yourself from the activities of competitors. In addition, methods of non-price competition allow for the diversification of prices in the market and the extraction of consumer surplus from different consumer groups, without prejudice to their interests [5].

3.3 Choice of pricing method

At this stage, the company decides the formation of price policy through the choice of the method for setting prices for the goods. Among the most common methods used in a competitive environment, one should note the mark-up on the cost of production, the break-even principle, the orientation to effective demand, the dynamics of market prices and the price offers of competitors.

The method of mark-up on prime costs is often used in a market economy because of the simplicity of the calculations. Dimensions of margins vary in a wide range, which is related to the types of goods, the territorial features of markets, the attitude of government regulatory agencies, etc. Such a pricing method has several advantages: it is easier for producers-sellers to analyze the level of production costs and determine the cost price of their products than to carry out a set of marketing activities to analyze demand and the factors that affect it; in conditions when the majority of competitors in the market adhere to the same method of establishing prices, the possibility of price competition and the loss of a significant share of profit as a result of it is practically excluded; the markup on the cost price, as a rule, has reasonable limits (no more than 50%), which allows the manufacturer-seller to extract the consumer surplus, not striking at the consumer's income [6].

However, there is a danger not to follow the dynamics of solvent demand in the market and not to change the price tactics of the enterprise on time. This can lead to a decrease in the competitiveness of the enterprise in the market and an increase in the level of risk of loss.

The break-even principle means setting the price at a level at which the proceeds from the sale of production cover the total production costs. Applying this method, the company diversifies prices depending on the volume of consumption, which stimulates demand and increases revenue from sales of products.

The method of targeting solvent demand is used by enterprises that have marketing departments in their structure or have the means to analyze the demand for products. It is important to assess not only the requirements for quality, product design, maintenance, etc. at the moment, but also take into account the wishes of consumers (potential demand). When using this method, the enterprise diversifies prices for the quality of goods, novelty, product categories, depending on the social group of the consumer. This makes it possible to withdraw consumer surplus from different groups of consumers, but it requires significant expenditures for marketing activities [7].

Orientation to the dynamics of market prices includes the recording of the level of current prices in the market and its change in the short term, depending on the prices of factors of production or trends in consumer demand. This method avoids large-scale marketing research in the formation of pricing policies, especially in the market of perfect and monopolistic competition, where the level of market prices reflects the real picture with respect to total costs and the rate of return [8].

The method of targeting price expectations of competitors is most often used in the oligopoly market in a leadership situation at prices when the leader company is the first to set a price, and the remaining market participants follow a given price level. The enterprise can also assess the expectations of competitors regarding medium- and long-term price changes. As a result, the enterprise conducts a price policy of following prices or price competition.

3.4 Choosing a price strategy, setting a final price

Having chosen the method of pricing, the firm proceeds to the implementation of the decision to fix the price. In doing so, it must take into account a number of additional market pricing factors: psychological factors (relative to consumers), a desirable price pattern, the possibility of price diversification. The importance of this or that factor depends on the chosen price strategy, which in turn is significantly influenced by the stage of the enterprise's life cycle [9].

At the stage of the enterprise's appearance on the market, the main goal is to survive in the conditions of tough competition. In this situation, the most applicable is the penetration strategy for a new market, for which psychological factors of pricing are of great importance [10].

Thus, in most cases the enterprise uses the tactics of the first digit when setting the price. It consists in the fact that the price is set in an unrounded form, for example, 399.99 rubles. The bet is made on the fact that the first sight of the buyer falls precisely on the number 3, and the feeling is formed that the goods cost 300 rubles.

Another option of accounting for consumer psychology – price as a reflection of quality – suggests people's opinion that the higher the price, the higher the quality. This variant of price setting is especially characteristic for the Russian market of consumer goods, for example, clothes and footwear.

The third option – price as a reflection of the prestige of the product – includes consumers' opinion about fashion, attitude to a particular social or professional group. As a result, the higher the price of a product, the more prestigious it is from the point of view of the consumer (for example, salons for the provision of hairdressing services).

At the stage of enterprise development, the objectives are to maximize profits and accelerate the growth of the enterprise. In this case, the strategy of market development or its segmentation is most often used. The most important element of the company's pricing policy is the struggle with competitors for consumer surplus. A characteristic decision on the final fixing of prices for products is their diversification.

At the stage of stability the enterprise has already consolidated its positions in the market, it is quite competitive. Therefore, its goal is to increase market share or achieve leadership in prices. Such a target installation corresponds to a strategy of stabilizing positions in the market, which implies the creation of a desirable price pattern. The most frequently used system of discounts and the slogan of the lowest prices in the market [11].

Over time, new competitors appear on the market, keeping pace with the NTP and new customer needs. As a result, a company that has been on the market for a long time, begins to become obsolete. The main goal is to maintain market positions. In this case, the strategy of stabilizing positions in the market is applied, but attention is paid not to the creation of a price image of the enterprise (as in the previous stage), but to its preservation. At the same time, management begins to think about updating the company.

At the stage of reorganization, the company conducts activities aimed at updating and developing activities, one of which is the formulation of a new pricing policy. To do this, we use already known strategies for penetrating the new market and developing the market or its segmentation. Decisions on the final fixing of prices for products are made in accordance with the chosen strategies.

Thus, having passed all the stages of pricing policy formation, the enterprise takes the final decision on setting prices for the products, taking into account many factors: the type of the market where the products are sold; goals and objectives of the enterprise; opportunities for marketing activities; level of competition in the market, etc. Correctly formulated pricing policy is a dynamic process aimed at increasing the level of competitiveness of products and the enterprise itself in the market [12].

Conclusion

The price policy of an organization largely depends on the type of market in which it operates (market of perfect competition, monopolistic competition, oligopoly and pure monopoly).

In the market of perfect competition, the price is established on the basis of its equality to the marginal cost of production, the equality of marginal revenue to the minimum value of average costs when it coincides with consumer demand.

Pricing in the market of monopolistic competition, oligopoly and pure monopoly presupposes the seizure of consumer surplus, if possible with different groups of consumers.

The process of forming a pricing policy passes through the stages: the development of goals; analysis of pricing factors; selection of the pricing method; choice of price strategy and setting the final price.

The choice of the option of price policy and price strategy is influenced by the stage of the enterprise's life cycle: the appearance of the enterprise on the market, the development of the enterprise, the stability of operations, obsolescence, reorganization of activities.

Price strategies in the price policy are based on certain factors of price setting: the penetration strategy for the new market takes into account psychological factors; the strategy of market development or its segmentation presupposes the diversification of prices; the strategy of stabilizing positions in the market is focused on creating the desired price image.

In writing this essay master's work is not yet complete.

Final completion: May 2018. The full text of work and materials on the topic can be obtained from the author or his manager after that date.

References

  1. Adamov N., Adamova G. Pricing policy of the organization // Financial newspaper. Regional issue. – 2007. – No. 11.
  2. Alklychev A. Price policy and impact on economic processes / Economist / 2004, №5, – p. 12.
  3. Bronnikova T.S., Chernyavsky AG Marketing: Study Guide. – Taganrog: Publishing house TRTU, 2003. – p. 64.
  4. Gerasimenko V.V. Pricing: Textbook. – Moscow: INFRA-M, 2005. – 422 p.
  5. Golubkov E.P. Fundamentals of marketing. – M.: Finpress, 2003. – 688 p.
  6. Kotler F. Fundamentals of Marketing. – Moscow: Progress, 2004. – 1056 p.
  7. Lipsits I.V. Commercial Pricing. – Moscow: BEK, 2002. – 354 p.
  8. Moiseeva N.K., Aniskin Y.P. Modern enterprise: competitiveness, marketing, renewal. – Moscow: UNITY, 2005. – 232 p.
  9. Petrosyan A.A. Some aspects of tactical pricing // Marketing in Russia and abroad. – 2003. – №3.
  10. Poonin E.I. Marketing, management and pricing at enterprises in a market economy. – Moscow: International relations. – 2003. – 345 p.
  11. Salimzhanov I.K. Pricing policy of the organization // Finance. – 2006. – №8.
  12. Slepneva T.A., Yarkin E.V. Prices and Pricing: Textbook. – Moscow: Infra-M, 2004. – 453 p.