Importance of pricing - Cost Accounting Assignment Help

Importance of pricing

1) Product differentiation getting blunted: as technologies get standardized, differentiation among firm on the basis of the product is going to get blunted. More products and brands will transcend to a commodity situation. This is not a healthy sign as commodities are always subject to price fluctuation and price wars. For at this stage the only way to differentiate between brands is the price.

2) Inter firm rivalry: the intensity in inter firm rivalry increases as the entry and exit barriers in the industry are lowered. With an increase in this rivalry we find that a firm s cost of operation also increases as it now has to send more money to lure customers and middlemen. It has to also invest money in new product development.

3) Mature products and markets: when the products enter the maturity stage and the market are also mature the only way to differentiate the various offers is on the basis of augmented service or price cuts.

4) Customer’s value perception: another factor contributing to the importance of pricing decisions is the customers perception of the product current and potential value. To a customer price always represents the product value many a time the customer perception of the product value may not necessarily be in line with its price. There are instances in which the product is overpriced when its value perception is lower than the price tag on it and vice versa. For a marketer it is important that products are priced at the right level.

5) Inflation in the economy: pricing decision become important in the inflationary economy. Inflation affects pricing in two way:                  

6) The firm now finds itself in a dilemma if it passes the increase in input costs to the customer in the form of a price increase and there are equally attractive alternatives at lower prices available to him the firm may lose the customer. And if it doesn’t increase the price it incurs a loss. The challenge of price management is also higher when the firm realizes that there are other firms in the industry that operate at a more efficient level in an inflationary economy.

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