Question

One of the most important management jobs is to properly price the items the company is selling or services it is offering. If the price is set too high, then the item may not sell. If the price is set too low, then the company is leaving money on the table. Therefore, it is critical for managers to understand the costs incurred to make the item or provide the service. What are the critical costs in your own work environment and can you identify the problems in properly identifying them? The example of where I work is customer serivce represenitive with

Insurance. Should be at least 200-250 words.

Answer 1

In the ever-changing business world of today, with increased globalization and low-cost manufacturing from Asia, competitive advantage is key. Competitive jostling is a never ending battle as continuous product innovations result in shifts in competitive advantage. Consequently the question most companies ask themselves is ‘How do we get more?’

However, asking customers to quantify the price they would be willing to pay for a product or service is one of the hardest questions for any researcher as the customer may not feel that they can answer such a question or if they can it may not represent their true actions if such a price was introduced to the market.

The Basics Of Pricing.

1. Simple Supply & Demand Equilibrium.
2. A Product With An Inelastic Demand.
3. Different Pricing Techniques can be Used.

• Gabor-Granger Price Volume Curve From Market Research.A more sophisticated variation of the Gabor Granger technique is called Van Westendorp pricing. Price Sensitivity Measurement (PSM) was devised, in the 1970’s, by a Dutch psychologist, Peter van Westendorp. This technique uses four questions about a product or service and requires the respondent to rate each price on a scale from too cheap to too expensive.
• Indifference Price Point. The Indifference Price Point (IDP) is where the number of respondents who regard the price as cheap is equal to the number of respondents who regard the price as expensive.According to Van Westendorp, this generally represents either the median price actually paid by consumers or the price of the product of an important market leader. IDP is based on customers’ experiences with price levels in the market and will change with market ​​​​​​.
• Optimum Pricing Point. The Optimum Pricing Point (OPP) is the price at which the number of customers who see the product as too cheap is equal to the number who see the product as too expensive. This is typically the recommended price.

4.SIMALTO – Simulated Multi-Attribute Level Trade Off.

Trade-off grids are an approach to collecting information from respondents that recognises that an individual customer cannot have everything. He or she has to make trade-offs to get the best product they can buy. The classic trade-off is between price and quality, but in practice when considering most purchases we make trade-offs between different features and service levels and even emotional risk.

Problems in identifying the proper pricing of the products are as follows.

1. The lack of internal alignment on the Pricing objectives within a company and between the different functions concerned. Not sharing the same definition of expectations and goals across the different functions involved in Pricing generates missed opportunities to enhance business performance. We sometimes even see different departments in companies having objectives that are in direct conflict and that inevitably result in missed opportunity to enhance profits.
2. An ineffective Pricing governance or a lack of policies to guide Pricing in the field. This is generally due to limited visibility as to what is the true price realised by the direct force or indirect sales channels. There is also a risk of having excessive or unnecessary discounting, jeopardising the integrity of prices charged to similar customers buying the same volumes.
3. Market misperception of the Pricing related to the value delivered. If your customers don’t understand the value of your products and services, there is a strong likelihood that they will push back on your prices.
4. Misaligned offer and related prices across the different customers or segments served. Many companies fail to adapt their offering as they serve different customers who have varying value requirements. Some might want high value and will be willing to pay for this while some others want less value and seek for a different price. The “offering menu” concept enables companies to do it well but B2B companies generally don’t apply it consistently.
5. A new product or service innovation that is not appropriately priced. Launching a new product or service presents many risks and companies have in general low chances of success. However when companies don’t properly understand the value of their innovation and don’t prepare the Pricing well, the failure rate of a new product rises sharply.
6. Gaps in capabilities and enablers in managing Pricing. Companies have different levels of maturity when it comes to Pricing. We have observed that organisations that are building their own Pricing Capabilities and that have a senior management focused on pricing achieve better business performances.

These are some of the problems to be faced during identifying the prices of services offered by the organisation in market.