Pricing Methods and Pricing Steps Research Assignment (Essay Sample)

Pricing Methods and Pricing Steps
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Pricing Methods and Pricing Steps
Setting a product or a service price can be challenging since many variables have to be considered. Besides, the correct pricing can rely on values that require extensive research to know them. The essay below describes the pricing methods and steps that organizations need to follow while setting up a price for goods or services.
Pricing strategies vary depending on the type of product or the type of service being offered. The first pricing method that an institution can use is the cost-based pricing or the cost-plus pricing. The method entails the accumulation of all variable and fixed costs. Then the sales and the fixed costs per unit are determined. Lastly, the fixed costs and the variable cost are summed up, and a profit margin is added to estimate the final price (Nagle, Hogan, & Zale, 2013).
The value-based pricing technique sets the price depending on the value the service, or the product creates to the clients. The method requires the compiling of all value propositions made by the product or the service and then calculating the monetary amount of each preposition (Nagle, Hogan, & Zale, 2013).
The other pricing method is the retail pricing. A retail price is a price that a retailer sets to his/her customers while the wholesale price is the on a retailer pays for the product. The retail price can be determined by the multiplication of the wholesale price with a percentage or a markup. Mostly the retail price is two times the wholesale price (Nagle, Hogan, & Zale, 2013).
Lastly, the demand-based pricing entails pricing a product or service depending on its demand. If the demand is high, then the organization sets a high price and vice versa. The success of this method depends on the aptitude to analyze the demand of the product or service in the market (Nagle, Hogan, & Zale, 2013).
While setting a price, an organization should consider the following steps
Step 1: Selecting the Objectives
The company needs to establish goals for the set price. Objectives are chosen depending on whether the company wants to the product to survive in the market, to maximize the profit or to increase sales (Smith, 2012).
Step 2: Determining the Demand
The company should check whether the set price will increase the demand or not (Smith, 2012).
Step 3: Estimating Costs
The step entails calculation of all costs accrued to the product or the service that the business is offering. Such costs include the variable costs, the fixed costs, differential costs and sometimes the target costs (Smith, 2012).
Step 4: Estimating the Profits
At this level, the company should use a set sale price to determine the profit margin. The benefit is evaluated by deducting the total costs from the total sales/revenue (Smith,...