Richard (2005) Analyzes the demand curve and puts to light that, by knowing the amount of quantity required, compared with the price is vital for one to know the effect of setting price by putting into consideration product demand. Pricing a product is setting its market value after it undergoes some several stages ranging from; raw material gathering, production level, distribution, whole sale and consumption stages not forgetting value added tax involved by the government. Pricing strategy also in cooperates building a selling plan, carrying out selling scrutiny, positioning, segmentation and targeting. Moreover, selling mix market strategy approach identifies the product allotment and promotion methods involved. Initially formulation of market strategy, product position and targeted market are considered before manufacturing of a product. Pricing a product is also determined by its quality. Therefore product pricing depends on the product quality, promotion strategies and distribution methods used among other factors.
According to Richard (2005) prices can be determined by carrying out a reseach study of pricing above and below the current market price. More demand shows that rise of product price may be possible. The product cost is determined by putting into consideration the variable cost and fixed costs. The organization producing the product decides on the price to set bearing in mind costs involved in production, packaging, advertising and distribution in order to make profit. The lower limit price of the product is determined by unit cost and values profit margin on the higher side. Fixed cost and cost of each additional unit determines the total cost of the product.
Scott (2004) evaluates the surrounding factors which involve competitors approach and lawful controls involved. A competitive point should be considered which have an impact in pricing. Setting a product price too high, attract competitors who want to have a fat market share in this golden cake of profit. In contrast, low pricing of a product leads to risk of making loses and price war amongst firms. In the lawful standards, there are price controls which inhibit high pricing or low pricing which is considered as dumping of a product and may violate laws of price inequity. Therefore it is vital for a company to come up with a price that compromise with competitors’ price and gain competitive edge in market place maintaining high profits.
Wagdy (2004) argues that laying down selling price involves considering maximizing profits and maintaining price stability. The latest profit maximization puts in to account cost and revenue involved. With no regard to profit margins, current profit maximization seeks to produce more revenue. The most basic factor in setting standard price is to maintain long term maximized profit and increasing market share and costs reduction. Standard price is made to increase the number of items sold or the number of consumers served therefore reducing long term expenses. Pricing is also facilitated by quality leadership. Another factor determining pricing is price skim which involves setting up high prices by targeting those consumers who are less sensitive in prices. This action is aimed at profit maximization. It’s applicable when demand is predictable to be inelastic, it difficult to focus saving cost that would be achieved in a high turnover and even when the firm has no large capital capacity to spend in order to get high production volumes.
Price penetration is aimed at enhancing high quantity sales at market place. This is applicable when consumers are price sensitive and have high decline demand. Voluminous production is as a result of much decrease in cost. Some of pricing methods adopted by managers are expenditure; this expenditure is then reflected in product price. As a result these have an effect of setting the price at production level. In addition, psychosomatic pricing is based on emotional, quality and popularity and what consumers consider to be fair.
Norton (2005) argues that discounts offered to products also influences pricing. Some of them adopted are quantity discounts offered to clients who buy in bulky resulting to price reduction. Collective quantity discount is offered to clients who buy in huge amounts over time therefore price paid is fair. Seasonal discounts determine prices at certain period of the year and only run for a day or a week. Their effect in pricing is within a limited time. Cash discounts are given to clients who meet their bills before a specific time which enables them to pay low prices for their products. Trade discount is offered to members who perform their duties like just purchasing which enables them to acquire products at a fair price, while discount during promotion is a short one aimed at sales stimulation hence product pricing is controlled by that event.