Introduction of Finance For Entreprises-Pricing Decisions Assignment
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Identification of the factors influencing pricing decisions
The pricing decisions of an organization are associated with the strategies and procedures a business institution adopts to set the price of its products and services. The relationship between the price and elasticity has been used to find out the total price that can be used for the production of its product. As opined by Burke and Abayasekara (2018), the selection between the pricing methods has been said to be one of the essential aspects of the pricing decisions in which the relative factor of the pricing decisions needs to be considered. The product line pricing strategies and certain areas of the total product line have been considered in making the pricing decision of the business. The two important factors in making pricing decisions are the explicability and the present market condition which need to be followed in making sustainable growth analysis for the organization for a stipulated period of time.
The internal factors of a business that make an impact on the objectives of a company are the organizational structure. The other factors of consideration are the marketing mix, the policies of product differentiation, and the strategies used to ascertain the costs of the product. As narrated by Jawad et al. (2018), the pricing decisions of a business are related to the pricing objectives of the business and the targeted rate of return of the business has played a significant impact in the purpose of estimating the sustainable growth of the business. The organization structure is necessary for estimating pricing decisions just because an organization cannot be able to reduce the prices of its products without including the cost of production into it. The four 'P's of marketing mix have also made an impact on the pricing strategies of the business and the financial strategies and operational success of a business is related to the changes in the marketing strategies of the business.
Discussion on the price elasticity of demand
The main purpose of evaluating the price elasticity is to measure the sensitivity of the quantity based on the total price and demand of the product. The main focus of the price elasticity is to evaluate the change in the price related to the change in the total demand for the product. As believed by Jawad et al. (2018), the laws of supply and demand have been followed in the price elasticity of demand, and several exceptions are also followed in its discussion. The coefficient of the price elasticity and the interconnection between the various variables has been considered the most important activities in its sensitivity analysis.
Price elasticity of demand
(Source: Heilmann, 2021)
The change in the total percentage of demand is less than the total changes in the percentages of the price, the demand for the product have been treated as inelastic. In this case, if the price of the product increases as well as the demand for the particular product has been reduced, the situation has been termed an inelastic demand situation. As mentioned by Lavieri and Bhat (2019), the changes in the percentage of the change in demand should need to be valued based on the total changes in the valuation of the demand for the products of an organization. However, in the third graph, it has been observed that the percentage change in the service is said to be equal to the total changes in the prices of the product. Thus, in this condition, the price elasticity of demand is said to be perfectly elastic.
Relatively elastic and inelastic demand
(Source: Liu et al. 2018)
Evaluation of the pricing models
There are different types of pricing models that have been observed which helped in the proper valuation of the products and services the product. Several strategies have been adopted into the pricing decisions through which the growth and marketing strategies have been maintained. As believed by Rozario (2019), the different types of pricing models are premium, value, skimming, and penetration-based pricing models. The main aspect of the premium pricing model is that tactical pricing strategies have played a massive impact in making the production growth within the business. The immediate competition within the business and higher pricing strategies are adopted in the premium pricing model. A skimming pricing strategy is all about the estimation of the highest initial price of a particular product or service that the customers of that organization accepted to pay. The examples of the skimming pricing models can be considered as the price of the iPhone as the demand for the product is not reduced based on the increase in the price of that product.
The main focus of the economy pricing strategy is that the total cost of the product has been prepared based on the analysis of the cost price of the products available within the market. The strategy of the business should make a reduction in the selling price of that product as the demand of the wide range of the pupil has been observed within the organization. As mentioned by Shahi et al. (2020), implementation of strategic planning and making a proper projection of the business strategies are said to be one of the best areas in which the business can be able to make sustainable growth within the business. The concerned area of the penetration pricing model is that it assists the production department of an organization to launch a completely unique product into the market as it will be able to accumulate sustainably demand from the existing as well as new customers from the present market.
Discussion on the pricing model based on the stages of the product life cycle
The necessary stages of the product life cycle are introduction, decline, growth, and maturity of the product. In this regard, the above-mentioned four pricing strategies are related to the various stages of the product life cycle. As opined by Burke and Abayasekara (2018), the penetration pricing model is related to the introduction stage of the product life cycle of an organization as the growth of the product is completely dependent on the collection of the demand and approval from the existing customers of the organization. Improvement in the financial strategies and making specific development within the business has helped in improving the pricing models mentioned within the organization. The skimming pricing model is equivalent to the growth stage of the business as the organization is concentrated on making the expansion of the brand value of the product. Implementation of the sustainable business activities and implementation of the operational strategies the intersection between the pricing model and stages of the product life cycle has been estimated.
Estimation of the advantages and disadvantages of the pricing model
The basic advantage of the premium pricing model is that the competitor analysis has helped in finding out the important customers of the business. In contrast, the drawback of the premium pricing model is that the pricing strategy is said to be high in this model as on many occasions the customers did not give a positive response about that product. As stated by Liu et al. (2018), the main advantage of the skimming pricing model is that the customers of the product are desired to buy the latest model of that product as the change in the pricing does not affect the total demand for the product. The drawback of the skimming pricing model is that the pricing model does not concentrate on the middle and lower-income levels of people as the centre of concentration is for the upper-income level of people within a country.
Real examples of products and services
The price of the iPhone is £1,000 and the point of discussion is based on a specific brand of the product which is more than one year older. The purpose of selecting a one-year-old product is that an adequate trade discount can be accumulated on that product. The initial value of sales of that product was £1,180 whenever it came to the market. The total sales of that product were 12,000 units and it increased to 17,500 units whenever the price of that product was reduced by £180 in the existing market. The skimming pricing model has been applied by the iPhone which doesn't make any kind of impact on the demand for the product. However, a major percentage of the population of the country uses mobile phones below £300 as the pricing strategy does not consider those people in the entire UK market.
Application of the market and environmental conditions
Whenever the demand for price elasticity is observed as zero, the demand for the products and services is considered perfectly inelastic. In this case, the demand curve is observed in the vertical mode. In the graph, it has been observed that due to changes in the quantity demanded the demand curve line has been considered as vertically sloped to the x-axis. The industry of the iPhone belongs to the monopolistic market in which the seller dominated in fixing the price of the product. The demand for the product is said to be worldwide and the total number of customers for their products has been observed as increasing day by day.
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