There are many scientific definitions of the concept of price, but most of them have lost their relevance in the last century. The fact is that the price is rather a philosophical concept, because it is a certain value of the product, which allows the buyer to enjoy its purchase, and the manufacturer / seller to get a regular buyer. The latter is important because a one-time sale is something very far from real marketing. And if the buyer is absolutely not worried about the profit that the seller will receive, but only his own pleasure from the purchase transaction, then the seller should be concerned both with the question of his own profit and satisfaction of the client’s desires. Therefore, the manufacturer has an important mission - to make both parties happy (WIN-WIN).
There are many variations and pricing models, but the most common are:
- Traditional (calculation). When the costs of manufacturing the product are determined, overhead costs and other total expenses and financial risks are calculated, which are determined in each individual case and the planned or expected profit is laid, usually in percentage terms. This method of pricing is the most common and ancient;
- Marketing (market). When the price of manufactured products is set on the basis of existing offers on the market for a similar product or substitute goods. In this case, profitability is non-permanent and fluctuates depending on whether the company is aggressively expanding in the market or vice versa - it implements the strategy “more expensive means better”.
Both of these methods have their advantages and disadvantages, which are much described in the economic literature, so do not dwell on this. It is only necessary to note that the first method is cheaper than the second, since it does not require such dynamism.
And it is worthwhile to dwell on the fact that often (or rather, as a rule), when the price of the final product is determined in the traditional way, the cost of the product consists of several (or several dozen) mathematical operations, and in this case it is not a question of the client. Moreover, a simple linear pricing only through arithmetic can lead to an overstatement of the price offer. This is because human nature, in the event of uncertainty, tends to be reinsured, that is, to lay down some of its own concerns in the calculation. And since during the calculation process many indicators are calculated, the final price, which at the end will be “born” in the department, may be overestimated by 10-20-30%. If we lived at the beginning of the 19th century, then there would be nothing wrong with that. High price - higher incomes, owners are happy. But the problem is that the 21st century is outside and competition in the market (and now there are practically no non-competitive markets, if we talk about a market, rather than a monopolistic-oligarchic economy), leads to the fact that the buyer is running away to a more progressive and “genuine” "To the player. Then the following happens: the organization “closes” on itself and creates a product under the conditional name “our best product” and receives a resounding slap in the face from the market, which is filled with the same products, only 10-20-30% cheaper.
Therefore, an important and effective mechanism for such pricing will be constant monitoring of the market (at least for key positions) and comparison of competitors' prices for the same products. With a certain sample, for maximum objectivity, since some players may temporarily lower prices for market expansion, but this cannot happen to everyone for a long period. Also, certain problems with pricing may indicate an outflow of customers to competitors. This is a powerful marker indicating pricing or quality issues. Or rather, with the problem of price / quality ratio.
In marketing pricing, since we do not have the opportunity to adjust profitability with the price set by the market, it is important to work continuously with cheaper manufacturing process (search for cheaper raw materials, process automation, modernization, etc.).
Yury Buzikevich • partner InBridge Consulting