Pricing strategies
A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy.[1] Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.[2]
Pricing strategies determine the price companies set for their products. The price can be set to maximize profitability for each unit sold or from the market overall. It can also be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market. Pricing strategies can bring both competitive advantages and disadvantages to its firm and often dictate the success or failure of a business; thus, it is crucial to choose the right strategy.
Models of pricing[edit]
Absorption pricing[edit]
Method of pricing in which all costs are recovered. The price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs. The absorption pricing can be calculated via '(Unit Variable Costs + (Overhead + Managing Costs))/ Amount of units produced. Fixed/ Variable Costs, Direct/ Indirect Costs, Employee Salary, Utility Costs, and other types of costs can be calculated by applying the Absorption Pricing Method.