Pricing methods in a market economy is an important topic that attracts the attention of any real professional. Price at present can be called the most significant category in the economy, since it is it that controls the position of an individual business entity, individual. Price adjusts the position of all elements of the economic system, from a particular enterprise to the state as a whole. Pricing methods in a market economy allow you to systematize, streamline this area. Constant control, regulation, self-regulation is the basis of the stability of the national economy.
The importance of the topic
If a certain economic entity is interested in increasing its competitiveness, it is necessary for it to think over approaches to the formation of values and to study the basic methods of market pricing, to apply them in practice. The entrepreneur must clearly understand which factors primarily affect the value of the position, and based on this conduct activities.
Pricing involves a process in which a price is assigned to services, goods. You can approach this task using one of two methods. There is centralized, state-run pricing. This happens through special institutions, authorities, bodies. The second option is a market pricing method. The concrete decision on the cost of a certain position remains with the manufacturer of the goods.
How it works?
Practical pricing is a market-based and public method, combined within a region or country. It is impossible to create a place where one of the species would be completely excluded, and achieve successful, stable growth.
In the classical case, a market economy implies the dominance of appropriate methods for determining value, while state ones are characteristic of a planning and distribution system of management.
Price and demand
Market pricing methods include: attempts by state bodies to correct the situation, supply, demand, production costs, market rivalry, but not raised to the absolute, but only setting the boundaries of the reasonable.
Demand for a certain position in the market allows us to talk about the maximum price. This is such an indicator of value that enterprises can put up for goods distributed among buyers. Gross costs associated with production, which is a summarized indicator of time, fixed costs, make it possible to understand what is the lowest price that can be set on a product.
Rivalry and control
Types of market pricing methods include exposure from competing enterprises. The behavior of competitors, their strategies, and implementation policies strongly affect pricing in the industry. However, the price depends on the consumer parameters of a particular product, the prices set for similar products on sale.
One of the most important factors of modern market pricing methods is the regulation of the cost level established by state laws. Also, the country's authorities can adjust the pricing mechanisms available to enterprises. They talk about indirect, direct methods of adjusting the process of value formation by the state.
How authorities change prices
Life examples can tell quite clearly how the state can change market pricing methods. A good illustrative picture is created when studying the features of the formation of prices for products during the times of the former USSR, and today you can consider North Korea - however, this is not the only option, but just the first most visual countries that come to mind when it comes to state control. The authorities of some powers apply administrative measures to adjust market pricing methods. This implies a direct impact on a certain sector when the laws determine what prices need to be put on which group of goods or individual items.
An alternative is the indirect effect on the value-setting process. These are the so-called economic strategies and methods of market pricing, when the state purposefully adjusts market conditions, and at the same time brings the situation to a certain predetermined outcome - the economic and financial situation. Often, various measures are applied to achieve the goal, including adjustment of the tax program and foreign exchange policy. Such market pricing methods may affect pay aspects.
Price as a key factor
We can safely say that the task of value formation and the result of this process is one of the most important elements of the formation and development of a market economy. It is from the price that one can draw the correct conclusions regarding the competitiveness of a particular position in the market.
The strategy for determining the value is a tool used by any modern company entering into a competitive struggle with rivals. The price determines how large will be the profit and revenue component. Also, market pricing methods help to establish a value that becomes the basis for the normal development and functioning of the enterprise as an economic system.
Consumer Valuation Method
You can safely call this approach the most typical example of a market pricing method, since the company is primarily focused on demand. To identify a reasonable cost, they conduct specialized marketing assessments, research the market where the product is planned to be released, and based on the data obtained, make forecasts regarding the benefits of a particular cost.
Currently, mainly companies that use such parametric methods of market pricing, the cost components taking into account correctly enough, pay special attention to the demand indicator. This is due to the following dependence: if the price is higher than the acceptable level for a wide range of buyers, it will not be possible to realize the required number of positions. The method of consumer assessment is well combined with other approaches to pricing of goods. They independently apply it when a unique position is launched on the market.
Some features
Using the method of consumer assessment, you can apply the strategy, known in the professional environment as “skimming”. This is true if there is a steady high customer demand, and the audience is numerous and diverse. In some cases, the company also finds itself in a situation where the high cost scares competitors in advance that could produce rival goods. It is desirable that the price correspond to a high quality level, not be an obstacle to attracting the attention of a new audience.
The application of the method of consumer assessment is possible only in a situation where the enterprise has the resources for a thorough study of the target audience and the market segment in which to work.It is necessary to evaluate the market elasticity, demand factors, as well as stock up on financial opportunities, qualified personnel, so that expensive research yields a practical result. The method of customer assessment requires differentiation of goods, market segment.
What are we looking for?
Market research for the application of the method of customer appraisal in the framework of setting the price of products requires a correct idea of the possible cost, as well as an analysis of the capabilities of most buyers to identify the “fork of acceptability” by product costs. At the same time, it is necessary to investigate how the audience affects price changes. This phenomenon is called market elasticity. To obtain the correct information, it is necessary to collect a maximum of answers to questions related to the possibility of acquiring goods from different price categories.
When exploring the market, planning to apply the method of consumer assessment to form the value of products, it is necessary to correlate opportunities and needs, as well as cost dependencies and revenue component. The company must take into account specific aspects of the purchasing environment: gender of the target audience, age parameter, psychological characteristics and solvency.
Subtle aspects
Such a technique may not always give correct results, since all purchases, the information about which is used to build the strategy, are only expected events and not accomplished facts. To some extent, the refinement of information can be provided by trial sales. Within the framework of such an event, it is possible to determine which price ranges are acceptable on average to a wide audience. Further, the company adjusts its pricing policy by examining the reaction of consumers. This helps to optimize the volume of goods sold and the revenue received during each transaction.
Considering the application of this method in practice, it is necessary first of all to look at auctions where prestigious, unique products are exhibited. They represent a typical example of pricing, fully oriented to consumer interest and willingness to acquire a position.
Following the leader
If, in calculating the optimal price, we focus only on production costs, the resulting figure will be the lower minimum price limit, upon transition for which the implementation becomes a loss-making measure. On the basis of demand, a price is determined which is (as a rule) the maximum for a particular product designed for a specific group of customers. The field of the game, within which you can vary, is the entire space between the lower and upper boundaries.
Estimated price is one such indicator. It is important to consider not only their own ideas about pricing policy, but also measures taken by competitors to promote similar positions. Any advanced modern company has a clear idea of what prices are set by competitors, what successes they achieve.
When pricing, an enterprise is usually forced to focus on the policies that competing organizations push through in the cost field. Typically, a market consists of a leading organization and the firms following it. Price rivalry is often dominant if any company was able to minimize the costly component of the production process, which gives it tangible advantages compared to competitors.
An alternative is barometric leadership, when the company adjusts the price and the rivals immediately adjust to the new course. On the one hand, the leader retains the right to independently decide what price level is currently relevant, to maneuver taking into account variable market conditions, on the other hand, one should not hope that it will be possible to go far from competitors.
Features of the technique
Choosing the option of following the leader, the company puts in the first place the policy promoted by a competing company. But their own costs and demand indicators at the same time fade into the background, become subordinate parameters. When forming the cost of a certain product, the manufacturer chooses a price that slightly differs up, down, in comparison with the closest competitor in terms of level.
This approach is applicable only when working in a market filled with homogeneous goods. By applying the described methodology, an enterprise can minimize the risks associated with the independent formation of a pricing policy that the market may not accept.
Competition and Highs
If a company is forced to work in conditions of increased competition, it has some chance to influence generally recognized pricing trends. If the market is a pure oligopoly, then the organization can adhere to the established pricing policy for a long period of time.
However, in some cases, an approach involving active pricing is much more productive. It is necessary to focus the attention of the buyer on the most important advantages of the organization, allowing it to compete with other companies. If you manage to do this, comparing prices with competitors and adhering to a similar policy of value formation helps to lure a large percentage of the audience of consumers to their side.