Pricing Strategies | Assignment Help
Executive summary
In this report we will analyze the pricing strategies. Once the pricing objectives are clear for company, it makes the pricing strategies. For the purpose of gaining high market share, the companies along with the other strategies focus on pricing strategies are of immense importance No matter what your vision and strategies are, pricing plays a major role and must be consistent (Stiving, M 2011). Not only for marketing purpose, Pricing is the principal tool for the management of increase or decrease of demand, the redirection of demand or the change of time in the supply chain demand management. Supply chain management is actually a combination of approaches which are used with the purpose of integrating suppliers, warehouses, and stores efficiently so that merchandise is produced and distributed, having the right quantity, quality, location etc. And this is the reason why pricing strategies are vital for the supply chain management process. It is the way the companies do the pricing of their products. The pricing policies constitute the general framework within which pricing decisions are taken (Jain, A 2009-10). The pricing strategies help the companies in setting the prices analytically. The prices of the products, tangible or intangible are set according to the production cost, plus certain percentage is added to earn profit. Pricing strategies are not built with the purpose of just getting profits, but they are prepared by companies to be consistent in the market, to achieve the goals with the recognition of what they are. Pricing strategies provide the company with the greatest revenues and margin potential but it needs great analytic efforts in order to make an understanding of the market environment. The prices are determined keeping in mind the market share and profit maximization to meet the objectives of the company. The word retailing means the selling of goods or services usually to small units or individuals in small group. As the companies does the research for setting the pricing strategies, the retailers need to observe the channels of distribution and what the customers are having a will to pay for certain goods. There are a number of pricing strategies each of them having their own use and application in different companies. The pricing strategies should be in accord with the other components of the store’s retail mix, which may include the location, promotion, display, service level and last but not the least the merchandise assortment (Dune, P. M. 2013). Generally a pricing strategy may set prices below, at or above the market price. Factors mentioned above are the elements which help in setting the type of pricing strategy. There are generally four generic approaches for pricing which uses the price/quality relation; they may be defined as premium, economy, and penetration and skimming. And the other two specific approaches of pricing are the EDLP (everyday low pricing) and HLP (high/low pricing). The retailers usually opt for EDLP (Everyday low price), adaptability and flexibility, and delivery lead time as the pricing strategy of the goods or services.
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Literature Review
The project will explore why pricing strategies are having immense importance. It observed that pricing in a certain process, be it marketing or be it supply chain process, pricing plays an important role and has a visible effect. There are many pricing strategies used by the retailers, but this project will discuss the EDLP, (Everyday low prices), adaptability and flexibility and delivery lead time. The research will be done that what strategy is used in what discipline, having positive or negative impacts. The project will continue with the analysis of these strategies along with the authentic referencing. In order to know about the pricing strategies for an effective supply chain the 1st step is to observe the nature of the demands for the companies produced goods or services. As there are day to day changes in the environment, it is necessary for the companies or the retailers to match the supply of the goods or services with respect to the demand of the customers. Moreover, there is a relationship between the product designs which are required to be changed as per the requirement of the customer with the supply chain design. The test was run on two questions, primarily either the company follow the prescribed fit between the product design and the type of supply chain and while the company which follow the prescribed fit perform well. The result showed that the relation between following the prescribed fit and better performance level is low i.e. it is not necessary for a company to be performing better of it follows a prescribed fit of product design and supply chain. (Fisher, 1997). In 2007, the same research was taken one step up where the products were differentiated into functional and innovative products and the supply chain process was demarcated into physically efficient process and market responsive process. The research explained that product design which are functional in nature require efficient process while the product designs which are innovative in nature are well distributed through market responsive process. So a company which wants to have success in the market should first understand the kind of product design they are producing and accordingly a supply chain process. Campbell serves as a best example of having efficient supply for functional products, where the company on daily basis would take information of most and least favorite product and accordingly forecast the sales. On the other hand Sport Obermeyer uses the response from the market for different products and creates a better supply chain with low cost (Selldin and Olhager, 2007). These changes may involve as will be observed are the changes in product, production, technology and globalization. The greatest change observed today is the customers are taking the charge over meaning what they demand, the type, quality, quantity and even the pricing. To face all the circumstances and while facing these factors create a profit, can be accessible by making strong pricing strategies. All the pricing strategies, there uses, advantages and disadvantages are further discussed in this report.
Outline of strategies
Strategy may be explained as a plan or method which is chosen to attain a future that is attainment of a goal or solution to a problem, or some investment. Strategy is a hierarchical construct, resulting from a firm’s mission and objectives and leading into tactics and policies. (Weigl, T.2008). The four generic strategies are based on the evaluation of value and the tradeoff between the price and the professed quality. In order to select a particular strategy the retailers have to observe the quality aspects like the name, image etc. In the economy and premium strategies the price is seed as the market price. That is the price is high for high quality and the price is low for low quality. Whereas penetration means providing excess of what is expected in one products price and skimming prices is when the quality is lower than what is expected. (Sullivan, M. & Adcock, D. 2007). There are many pricing strategies in marketing used by the retailers to earn the greater profits. The everyday low pricing (EDLP) is a type of strategy in which the retailer sets the price close or between the regular and promotional prices. It has a policy of making the price lower than taking it to the lowest. The greatest advantage of EDLP is the consistency in price. The prices which are set low remain constant for more than a year. It can be either economy or penetrating generic pricing approach. In this the retailers does not offer any discounts, it goes on the policy of lower the quality, lower the prices. It is much more controllable scheme which leads to much predictable sales and performance financially. The companies who are use to have fluctuations in prices, with the help of EDLP they do not experience any affect by the changing prices. While there are many advantages of EDLP, those who switch to EDLP have to suffer from low profit gains. But the less profits are been perceived as much better than loss inn people’s changing demands. On one hand EDLP is easy to implement but hard to extend to the whole year, the small retailers find it hard to flow EDLP approach. One more drawback of EDLP is the goodwill of the retailer, when the customers finds low prices , the first judgment is that low price so the quality is also low, the economy approach. In such circumstances the retailer would be gaining no profits over the profit earned through discounter’s economy approach. EDLP strategy is not used by most of the merchants because they offer significantly lower average prices than other formats (Krafft, M. & Mantrala, M. K. 2010). The other strategy used by the retailers is the high low pricing, which is a mixed approach, setting prices above and below both. It is a strategy which is favored by mist of the retailers. This approach is successful if the retailers buy the goods in bulk and then sell them having profit. But this also has a drawback that when the retailers feel that the sales have become low, it starts to sell at low prices which in return affects the profit margin. With high-low pricing, there are periods when retailers can advertise price savings (Shimp, Terence A. 2010). On the short term basis the high-low pricing can be found as excitement to receive appealing discounts, but when in long term basis no savings are realized by the retailers using high-low pricing strategy. One kind of pricing is the adaptability and flexibility, in this the prices are set flexibly according to the market and competitors pricing, but not much profit is earned in this. All the strategies have their own pros and cons but, the mostly used pricing strategy having positive results is everyday low price (EDLP) strategy.
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