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Pricing policy is a set of rules, principles and methods in accordance with which an enterprise determines the cost of its products or services.

Concept definition

The pricing policy consists of two main components, namely, strategies and tactics regarding pricing. Speaking about the first element, it is worth noting that it implies long-term positioning of the product in the market. Here it is important to determine the price segment, as well as choose the methodology that will be used in determining the cost. Pricing tactics involve developing short-term measures which will provide effective sales during this particular period of time.

Pricing policy should be constantly adjusted depending on changes in the market situation. This is not just a method of making a profit, but also a fairly strong argument in the process of competition. The price should be set in such a way that it both satisfies the consumer and provides a decent level of profit for the entrepreneur.

Formation of pricing policy

The final cost of goods is influenced by many factors that lie both in the external and internal environment of the enterprise. The essence of the pricing policy consists of the following points:

• since the product is produced for the buyer, it is important to determine the maximum amount of money that he is willing to pay for a particular product;
• it is necessary to trace the trend of changes in sales volumes depending on price fluctuations;
• determination of all costs that arise in the process of production and sale;
• determining the degree of competition in the market, as well as the pricing policy of the main rivals;
• it is necessary to calculate the minimum price of the goods, providing zero profit, below which it is impossible to fall;
• calculation of the maximum possible percentage of the discount, which will not have a significant impact on the financial position of the enterprise;
• compiling a list of additional services that can increase the value of the product in the eyes of the buyer, and will also help increase sales.

Goals of pricing policy

The objectives of the pricing policy can be formulated as follows:

• to ensure the profitable functioning of the enterprise (or at least a zero break-even level in the event of a sales failure);
• get the maximum level of profit that can be achieved at the moment;
• development of new markets or obtaining leadership positions in a priority segment;
• "cream skimming" during the period when the buyer is ready to purchase a popular or unique product, even at an inflated price;
• increase in the indicator characterizing sales volumes (permanent or one-time).

Pricing analysis

A fairly complex concept is pricing policy. The analysis of its effectiveness in the enterprise should consist of the following points:

• based on the situation within the organization, as well as as a result of studying the external situation on the market, the interval in which the optimal price of the goods will be located should be determined;
• studying the reaction of buyers to changes in the cost of certain products;
• establishing the relationship between quality, as well as production features and the price of the goods;
• identification of factors that may affect the change in the cost of the product, both upward and downward;
• flexibility in demand for goods due to price fluctuations;
• calculation of the amount of possible discounts, as well as their impact on the final result of the production enterprise;
• after setting the final price, it is worth determining how it meets the goals set.

Pricing Approaches

The pricing policy of an enterprise can be developed on the basis of one of two approaches: cost or value. As the name of the first one implies, it is based on production costs, as well as sales. To begin with, the costs of manufacturing products are calculated. At the next stage, it is worth evaluating what the cost of promotional activities will be, as well as the transportation of goods to the intermediate and final consumer. Be sure to study the situation in the market, as well as the pricing policy of competitors. When all previous factors have been taken into account, the final figure can be adjusted based on how much value the product represents to the buyer.

The value approach does not imply measures to maximize sales. The final cost of goods is determined by the opposite scheme. To begin with, marketers study the behavior of consumers, as well as the value that this or that product represents for them. Next, it is worth assessing the general situation on the market, as well as determining the maximum amount that the consumer is willing to pay. If the set price completely covers the production costs, then you can start selling, otherwise, the final figure will have to be proportionally increased.

Pricing Strategies

The pricing policy of an enterprise can be formed on the basis of one of the following strategies:

• The price leader strategy is typical for those manufacturers that have won leading positions in the market. Moreover, they can both overestimate and underestimate the cost of goods, which will force all other players to adapt to this situation. Usually these are well-known brands, for the products of which customers are willing to overpay.
• The response policy is typical for relatively small enterprises that are not popular in the market. They are forced to set a lower price in order to attract buyers to their products. Aggressive strategies are used by those manufacturers who seek to expand market share and become industry leaders.
• The cream skimming strategy is used during the period when new products or their latest modifications enter the market. It should be noted that a number of buyers (innovators) are ready to pay even higher prices for such products, which is what manufacturers are guided by.
• A strategy aimed at conquering the market involves setting the lowest possible price for a particular product that will attract the consumer. Further, the selling price begins to rise, gradually approaching the market value.

Pricing policy management

Pricing policy management includes a number of mandatory tasks:

• assessment of costs and expenses that arise in the process of production and sale of products;
• determining the economic and marketing goals that the organization sets for itself;
• identification of competing firms, as well as analysis of their pricing strategy;
• analysis of the financial condition of the enterprise;
• market analysis in order to determine priority segments, as well as an acceptable price for the buyer;
• analysis of the competitive environment;
• development own strategy or its adjustment in accordance with the received data.

Errors in the development of pricing policy

The pricing policy is one of the key points in the work of the enterprise, and therefore it should be treated with the utmost care. Sometimes management and marketers make some mistakes that can negatively affect the financial results of the organization. Thus, it is necessary to work closely enough with the production shop so as not to miss a single item of costs that arise during the manufacture of the product. Otherwise, the operation of the enterprise runs the risk of being inefficient.

Before launching a product for sale, it is necessary to conduct a thorough marketing research on the subject of what value it has for the consumer. If this event is neglected, then there is a risk of setting an unreasonably low price. Thus, we can talk about lost profits, which could contribute to the further expansion of production.

Do not underestimate competitors and their pricing policy. It is important to analyze several scenarios that determine the reaction of opponents to your actions. Otherwise, your pricing policy may be ineffective and lose the competition.

Price categories

The pricing policy of the organization largely depends on how the company positions itself and its product on the market. In this regard, a number of categories can be distinguished:

• The highest price category means that the maximum level of profitability was laid down for each unit of production. Also, due to the cost, the image of products is increased, testifying to its prestige and high quality. Such a policy is typical either for promoted brands, or for manufacturers who are the first to enter the market with a fundamentally new product.
• The average pricing policy is followed by those enterprises that do not strive for leadership or super profits, but focus on the mass consumer.
• The lowest price category is caused, as a rule, by the low quality of products, as well as the lack of additional funds for marketing activities in the organization. Also, such a step can be resorted to by those firms that, at the expense of the lowest possible cost, seek to conquer the market as soon as possible.

Price types

Marketers distinguish two main types of prices for goods and services:

• The base price is the minimum limit at which a manufacturer will agree to manufacture and sell its goods. it makes it possible to fully cover the costs of manufacturing products, as well as to ensure a minimum profit (or a zero breakeven level).
• A fair price is determined by the value of a product in the eyes of buyers. Setting a higher selling price does not make sense, because the client simply refuses to overpay. If the manufacturer wants to make the price more significant, then care must be taken to give the product specific characteristics that distinguish it from other similar products.

Discount policy

A fairly serious marketing tool is a flexible pricing policy. It involves the installation of a system of discounts, which imply a certain reduction in the sale value of goods. This tool is used to attract customers, conquer a certain market segment, or maximize sales of goods in a specific period of time. Often, these price cuts are short-lived.

By setting a discount, the manufacturer does not work at all to his own detriment, because before that the price is somewhat overstated. So, speaking of seasonal sales, it is worth saying that they are fully offset by the profit received at the beginning of the sales period. When setting the size of the margin and discount, the entrepreneur must be guided not only by his own interests (base price), but also by the interests of the buyer, which are expressed in a fair price. Otherwise, these activities will not be successful.

Price competition

Price is one of the most common and effective tools competitive struggle. This process can be carried out in two directions:

• Underpricing is quite often used in the market where consumer goods are sold. Most often, this is resorted to by large firms with large volumes of production, and, accordingly, with minimal costs per unit of output. In this case, it is quite difficult for competitors to enter the market or win high positions.
• Overpricing is aimed at increasing the perception of the prestige and quality of the goods in the eyes of buyers. This is especially abused by promoted brands, taking advantage of the promiscuity of consumers.

Price discrimination

The pricing policy of an enterprise can be aimed at covering the largest possible market share, attracting completely different categories of buyers. Each of them pays the same price. This phenomenon in the economy is called price discrimination. An example is the discount program used by many well-known brands or retail chains.

The price in a market economy is one of the most important factors determining the profitability of an enterprise. Therefore, the pricing policy should be well thought out and justified. Pricing policy - these are the general goals that the company is going to achieve with the help of prices for its products, and a system of measures aimed at this. To correctly formulate a pricing policy, a firm must clearly understand the goals that it will achieve through the sale of a particular product. When choosing a pricing policy, it should also be taken into account that although the global goal of any enterprise is to make a profit, however, such goals as protecting one's interests, suppressing competitors, conquering new markets, entering the market with a new product, and quickly recovering costs can be put forward as intermediate goals. , income stabilization. Moreover, the achievement of these goals is possible in the short, medium and long term.

The main objectives of the pricing policy are as follows:

1. Further existence of the enterprise. An enterprise may have excess capacity, there are many manufacturers on the market, intense competition is observed, demand and consumer preferences have changed. In such cases, in order to continue production, eliminate stocks, enterprises often reduce prices. In this case, the profit loses its value. As long as the price covers at least the variable and part of the fixed costs, production can continue. However, the question of the survival of the enterprise can be seen as a short-term goal.

2. Short-term profit maximization. Many businesses want to set a price for their product that would provide maximum profit. In realizing this goal, the emphasis is on short-term profit expectations and does not take into account long-term prospects, as well as the opposing policies of competitors and the regulatory activity of the state. This goal is often used by enterprises in unstable conditions of the transition economy.

3. Short-term turnover maximization. The price that stimulates the maximization of turnover is chosen when the goods are produced corporately and in this case it is difficult to determine the structure and level of production costs. In order to realize the set goal (maximization of turnover), a percentage of commissions from the sales volume is set for intermediaries. Maximizing turnover in the short term can also maximize profits and market share in the long term.

4. Maximize sales. Enterprises that pursue this goal believe that an increase in sales will lead to a reduction in unit costs and, on this basis, to an increase in profits. Such enterprises set prices as low as possible. This approach is referred to as "price-to-market pricing policy".

5. Skim the cream off the market by setting high prices. Such a policy takes place when an enterprise sets the highest possible price for its new products, significantly higher than the production price. This is the so-called "premium pricing". As soon as sales at a given price decrease, it is necessary to reduce the price in order to attract the next layer of customers, thereby achieving the maximum possible turnover in each segment of the target market.

6. Leadership in quality. An enterprise that manages to secure a reputation as a leader in quality sets a high price for its product in order to cover the high costs associated with improving quality and the costs of research and development conducted for these purposes. The listed goals of pricing policy can be implemented at different times, at different prices, there may be a different ratio between them, but all of them together serve a common goal - long-term profit maximization.

Product Life Cycle Pricing Policy

The most famous and most criticized concept is the concept of the product life cycle. It proceeds from the fact that each product is on the market for a limited time due to obsolescence and is directly related to pricing, because it allows you to study the behavior of prices at various stages of the product life cycle, and thereby develop a pricing policy for each phase of the cycle. Each product goes through the following stages: development and entry into the market, growth, maturity, fall and disappearance from the market, that is, it lives its own life cycle, which has a different total duration, the duration of individual stages within the cycle, and the features of the development of the cycle itself.

A single price is rarely set for each stage of a product's life cycle; at each stage, new consumer segments with different price sensitivities appear on the market, which is taken into account in pricing practices.

The stage of product development and entry into the market

The main characteristics of the stage of development and entry into the market: significant research, development and production costs, the absence of actual competitors, the price is an indicator of the quality of the product. Price at this stage, on the one hand, does not play a significant role. However, if for consumers the price is an indicator of a certain quality, and at this stage of the product's existence they cannot yet compare it with alternative products, then their behavior is relatively insensitive to the price of the innovative product. Therefore, manufacturers should provide broad information about the benefits that consumers will receive from the use of a new product. In turn, information about the quality of a product is most often disseminated through potential buyers, so future long-term demand for a product depends on the number of initial buyers. According to experts, demand begins to adapt to a new product if the first 2-5% of consumers have adapted to it. On the other hand, the price at this stage should primarily compensate for the initial costs of research and development of new production. Therefore, it is usually high.

The Growth Stage During the Growth Stage, the product first encounters its competitors, thus creating more choice for the consumer. At the same time, consumer awareness increases, which increases its sensitivity to the price of the product. The price at this stage is high, but lower than in the previous phase. The price must exactly match the quality of customer value that the buyer expects. Entering the mass market depends on the state of the industry, internal capabilities, external environment, goals and directions for the future development of the company. In any case, two market elements will always limit the manufacturer's options: competitors and consumers. At the "growth" stage, the following pricing goals can be achieved: - "cream skimming", or rewards, when the price is set above the price of competitors, emphasizing the exceptional quality of the product; - setting the price of "parity". This is a situation where there is an overt or covert collusion with competitors or when there is a focus on the leader in setting prices. In this case, the focus is on the most typical mass buyer, that is, the company works with the entire market.

Stage of "maturity" of the product A feature of the stage of "maturity" is the appearance on the market of the most price-sensitive group of consumers.

In general, the market situation is as follows:

1) the market is saturated with the product;

2) competition is weakening due to the elimination of firms that could not withstand it (primarily with high production costs);

3) some firms move on to create a new product. The price level at the stage of maturity is low.

At this stage, market share is important for the firm, since its decline, even at low costs and the inability to increase the price, leads to an inability to recoup the costs. Often, as a separate stage of the life cycle, the stage of “saturation” is singled out. but it can also be seen as the final phase of maturity. During this period, the market is saturated, demand requires new products. So that competitors do not seize the initiative, it is necessary to create new products. At this stage, the market is expanding, firstly, at the expense of previously uncovered potential consumers; secondly, due to the geographical expansion of the market. It is at this stage that a certain general “market” price appears, to which manufacturers gravitate to a greater or lesser extent, firms have lower costs for promoting goods through existing ties. There is good competition among consumers.

Fall stage At this stage, the product zapakchivaet its existence under conditions of underutilization of production capacity. The price is either lower than before, or increases if a lagging buyer joins in. The impact of this situation on prices depends on the ability of the industry or individual firm to get rid of excess capacity for the production of this product and switch to a new product. Earnings and prices can fall sharply, but they can also stabilize at a low level.

In any case, production will be inefficient for any firm. The following must also be taken into account:

1. If most of the costs are variable costs, or funds can be reallocated to more profitable industries (for example, by reducing the number of employees), prices should decrease slightly, which will give an impetus to reducing production capacity in other firms.

2. If costs are mostly fixed and sunk, average costs dependent on reduced capacity utilization, price competition may increase as firms try to increase capacity utilization and capture more share of a declining market.

3. Basic Pricing Strategies An enterprise's pricing policy is the basis for developing its pricing strategy.

Pricing strategies are part of the overall development strategy of the enterprise. A pricing strategy is a set of rules and practices that it is advisable to follow when setting market prices for specific types of products manufactured by an enterprise.

The main types of pricing strategies are;

1. High price strategy

The goal of this strategy is to generate excess profits by "skimming the cream" from those buyers for whom the new product is of great value, and they are willing to pay more than the normal market price for the purchased product. The high price strategy is used when the company is convinced that there is a circle of buyers who will show demand for an expensive product. This applies: - firstly, to new, patent-protected and unparalleled products that appear on the market for the first time, i.e., to products that are at the initial stage of the “life cycle”; - secondly, to goods aimed at wealthy buyers who are interested in the quality, uniqueness of the goods, i.e., to such a market segment where demand does not depend on price dynamics: - thirdly, to new goods for which the company there is no prospect of long-term mass sales, including due to the lack of necessary capacities. Pricing policy during the period of application of high prices - profit maximization as long as the market for new products has not become an object of competition. The high price strategy is also used by the company to test its product, its price, gradually approaching an acceptable price level.

2. Average price strategy (neutral pricing) Applicable to all phases of the life cycle, except for the decline and is most typical for most enterprises considering profit as a long-term policy. Many enterprises consider this strategy to be the most fair, since it eliminates “price wars”, does not lead to the emergence of new competitors, does not allow firms to profit at the expense of buyers, and makes it possible to receive a fair return on invested capital. Foreign large and super-large corporations, in most cases, are satisfied with a profit of 8-10% of the share capital.

3. Low price strategy (price breakout strategy) The strategy can be applied at any phase of the life cycle. It is especially effective at high price elasticity of demand.

Applies in the following cases:

a) for the purpose of penetrating the market, increasing the market share of their product (crowding out policy, non-admission policy);

b) for the purpose of additional loading of production capacities;

c) to avoid bankruptcy. The strategy of low prices is aimed at obtaining long-term, not quick profits.

4. Target price strategy With this strategy, no matter how prices and sales volumes change, the mass of profit should be constant, that is, profit is the target value. Mainly used by large corporations.

5. Preferential price strategy Its goal is to increase sales. It is used at the end of the product life cycle and manifests itself in the application of various discounts.

6. The strategy of "tied" pricing When using this strategy, when setting prices, they are guided by the so-called consumption price, which is equal to the sum of the price of the product and the costs of its operation.

7. Strategy of "following the leader" The essence of this strategy does not imply the establishment of a chain for new products in strict accordance with the price level of the leading company in the market. It is only a question of taking into account the price policy of the leader in the industry or market. The price of a new product may deviate from the price of the leading company, but within specified limits, which are determined by quality and technical superiority.

The following strategies are less commonly used:

a) fixed prices. The enterprise seeks to establish and maintain constant prices over a long period, and since production costs increase or may increase, instead of revising prices, enterprises reduce the size of the package and change the composition of the goods. For example, you can reduce the weight of a loaf of bread costing 10 rubles, while leaving the price unchanged. The consumer prefers such changes to higher prices;

b) unrounded prices, or psychological prices. These are, as a rule, reduced prices against some round sum. For example, not 10 thousand rubles, but 9995; 9998. Consumers get the impression that the company carefully analyzes its prices, sets them at the minimum level. They like getting change;

c) price lines. This strategy reflects a range of prices, where each price represents a certain level of quality for the product of the same name. In this case, two decisions are made: a range of offer prices is determined - upper and lower limits - and specific prices are set within this range. The range can be defined as low, medium and high.

Even less common are pricing strategies such as:

Sales promotion;

Differentiated prices;

Restrictive (discriminatory) prices;

Falling leader;

Bulk purchase prices;

Unstable, changing prices.

After the markets are studied and the type of market is chosen, it is very important to determine the goals of the pricing policy of the enterprise (firm).

There are several main different objectives of pricing policy, the implementation of which can be carried out in the short, medium or long term. In everyday practice, it is important to find and implement with the help of pricing policy the optimal ratio of as many goals as possible.

The most typical main objectives of the pricing policy are the following:

• ensuring sales, the survival of the enterprise. This goal is for any firm operating in a highly competitive environment, i.e. when there are many manufacturers with similar products on the market, it is the main one. In order to continue production and prevent bankruptcy, firms are forced to price products low (in order to penetrate the market and win a larger share of it) in the hope of increasing their sales and a favorable response from buyers. In this case, profit may lose its paramount importance. If the price covers at least variable costs and part of fixed costs, then production can continue further, however, such a pricing policy entrepreneurial activity acceptable only for the short term;
• maximizing profits, increasing the level of profitability. This goal is set by those firms that evaluate demand, as well as the costs of production and distribution at different price levels and choose a price that will provide maximum profit in the future, increase profitability and maximum cost recovery. This increases profitability and expands the reproductive, including investment, opportunities of the company.

This goal has several options:

• - the company's desire to achieve a stable high level of profit over a number of years. Such a goal can be set by a company that has a stable position in the market, and also wants to use the market situation that is favorable for itself;
• - setting by the company stable income based on the average rate of return;
• - increase in prices and increase in profits due to the growth of capital investments;
• - the desire to increase the absolute amount of balance sheet profit and increase the profitability of the company (the ratio of profit to capital) or the profitability of commodity sales (the ratio of profit to cost).

It should be especially emphasized that essential goods (bread, sugar, milk, etc.) have a low, and prestigious special quality goods have a high relative profit, and therefore provide an increased absolute profit.

The goals of maximizing profits, increasing profitability can be set both in terms of the current pricing policy and in the long-term pricing strategy;

• slow market penetration. Such a pricing policy is typical for firms that believe that demand is very sensitive to price, but minimally susceptible to advertising. They charge low prices for the product and heavily advertise it in the media. Low prices will contribute to the rapid recognition of the product, and the small cost of its promotion will lead to increased profits;
• maintaining a stable position in the market (holding the market). This goal is to maintain the company's stable existing position in the market and favorable conditions for its activities. In this regard, the company takes appropriate measures to prevent the aggravation of competition and sales decline, conducts marketing research. Firms carefully analyze the situation on the market, price dynamics, the emergence of new products, and control the actions of competitors. At the same time, they do not allow both overestimation and underestimation of the prices of goods, at the same time they strive to reduce the costs of production, circulation and sale.

It is possible to maintain a stable position in the market with moderate profitability and fairly satisfactory other performance indicators of the company. For large foreign corporations (companies), in most cases, 8–10% return on equity is sufficient. In the domestic economy, for expanded reproduction, the level of profitability should be at least 20-30% in industry, and in agriculture, profit should be from 30 to 40% of the cost. However, in practice, the real rate of return is much higher than the figures given, it largely depends on the state of the modern economy;

• market share expansion, where the firm sells its products. Often this is due to the desire for market leadership. However, for firms that do not belong to the group of leaders, setting this goal (for example, to increase its market share from 10 to 13% within one year) can be important. In accordance with this, it is necessary to form the price and the entire marketing mix;
• maximizing turnover. This goal is to set a price that stimulates the maximization of turnover. It is usually chosen when the product is produced corporately and in connection with this it is difficult to determine the complex structure and function of costs. In such a situation, it is sufficient to determine only the demand function. It is relatively easy to realize this goal through the establishment in the field of sales of a percentage of commissions from its volume;
• breakout policy. It consists in setting prices at a level lower than, in the opinion of most buyers, a product with a given economic value deserves. At the same time, by increasing the volume of sales and the captured market share, a large mass of profit is obtained;
• maximum increase in sales. This goal is pursued by firms that believe that an increase in sales will lead to a decrease in unit costs and, as a result, to an increase in profits. Based on the sensitivity of the market to the price level, such firms set the price as low as possible. This approach is referred to as market penetration pricing.

However, the policy of low prices can only give a positive result under a number of conditions, in particular if: the market sensitivity to prices is very high; it is possible to reduce the costs of production and circulation as a result of the expansion of production volumes; price cuts will scare away competitors and they will not follow suit;

♦ maintenance and provision of liquidity (solvency) of the enterprise. Such a price and marketing policy of the company in market conditions is always relevant, since the steady insolvency of the enterprise threatens to announce its insolvency (bankruptcy). If the company has reliable customers and there are no settlement problems, then the management still needs to clearly understand the conditions and prerequisites that ensure stable solvency. At the same time, it should be borne in mind that the actual price is the price paid, which is expressed in the receipt of money on the account of the enterprise.

Reliable and timely payment for the purchased goods of the enterprise by customers is an important condition for a business partnership. Therefore, when implementing a pricing strategy, it is necessary to choose customers taking into account their solvency, use favorable forms of payment, in particular, prepayment, providing discounts for customers who are impeccable in payments, and avoid overpricing for goods supplied;

gaining leadership in the market and in determining prices. This most active and prestigious pricing policy is typical for large enterprises (associations and firms).

However, in regional and local markets, price leadership may belong to smaller enterprises. It reflects the position of the enterprise in the market as one of the most active in setting general price levels for some types of products (often lower prices than the current ones, or higher prices for a prestigious, high-quality product) and introducing innovations in the price structure. Such enterprises are among the first to change the price of goods, affect the level of exchange prices. In order to take a leading position in the market, the company must have sufficient potential.

The opposite pricing policy is also observed - passive following the leader, which under certain conditions can be a forced strategy;

• "cream skimming". This goal reflects the functioning of the market through the establishment of high prices. The company sets the highest possible price for each of its new products due to the qualitative advantages of the new product. When its sale at a given price is reduced, the company reduces it, attracting the next group of customers. Thus, in each segment of the target market, the maximum possible turnover of goods is achieved and the greatest benefit from the high profitability of sales is achieved;
• quality leadership. This goal of pricing policy is pursued by firms that are able to consolidate this image. At the same time, they set a high price in order to cover the high costs associated with improving the quality (unique, rare properties and features of the product) and the costs necessary for this.

The listed objectives of the pricing policy in a certain way correlate with each other, but do not always coincide. In addition, their achievement occurs at different times and at different prices.

The objectives of the pricing policy are closely related to the objectives of marketing, which in turn are aimed at achieving the overall production goals of the enterprise. Unit price multiplied by quantity is the main determinant of a firm's revenues, which together with its cost structure determine the amount of its profits. In general, the goals of pricing policy can be expressed as achieving high profits or obtaining a certain rate of return on working capital. In the case of certain projects, the objectives of the pricing policy may be aimed at increasing the share in existing markets or providing an enterprise with access to a new market. In addition, the company can achieve price stability in order to avoid excessive fluctuations in the profit margin (difference) and administrative costs associated with price changes.

Pricing and pricing policy

Pricing is the process of setting prices for goods and services. There are two main pricing systems: market and centralized state. Market pricing functions on the basis of the interaction of supply and demand, state pricing is the formation of prices by government agencies. In market conditions, pricing is a complex process, influenced by many factors. In each case, the marketing service will have to choose the pricing policy of the enterprise.

The pricing policy of the enterprise is to set appropriate prices for goods and services and thus adjust them depending on the situation on the market by interconnecting the prices of goods within the range, using special discounts and price changes, the ratio of the prices of the enterprise and the prices of competitors, methods of formation prices for new products in order to seize its maximum possible share, achieve the planned profit volume and successfully solve all strategic and tactical tasks.

When developing a pricing policy, marketers should get answers to the following questions: what is the market model; what place does the price take among the funds of competitors in the market segments where the company operates; what pricing method should be adopted; what should be the pricing policy for new products; how the price should change depending on the life cycle of the product; what are the costs. Pricing policy has a long-term impact on the activities of the enterprise. Therefore, before developing it, it is necessary to analyze all external (not dependent on the enterprise) and internal (depending on the enterprise) factors that affect the development of a pricing strategy.

The main environmental factors affecting the price level are: government policy; political stability in the country, as well as in countries where the company's products are sold; availability of resources; state regulation of the economy; perfection of the tax legislation; the general level of inflation; the nature of the demand; presence and level of competition, etc.

The main factors of the internal environment of the enterprise that affect pricing include: product properties; quality and value of products for the buyer; the specificity of the products produced (the higher the degree of processing and the more unique the quality, the higher the price); method of production, purchase of raw materials and materials (small-scale and individual production has a higher cost, mass-produced goods have relatively low costs and not so high price); mobility of the production process; targeting market segments; product life cycle; the duration of the product distribution cycle from the producer to the consumer; differences between market segments or buyer demand factors; competitor reactions; service organization; the image of the enterprise in the domestic and foreign markets; promotional activities, marketing purposes.

The pricing strategy is linked to the overall goals of the enterprise in the market. Such goals can be: increase in sales of goods; obtaining a given or maximum amount of profit; ensuring survival (gaining a larger market share); gaining market leadership; maintaining the existing economic situation in the fight against competitors; the formation of a certain image of the product, etc. The enterprise chooses each of the goals based on certain reasons or from its financial position.

The pricing policy of an enterprise can be formed on the basis of costs, demand and competition. When forming a pricing policy based on costs, prices are determined based on production costs, maintenance costs, overhead costs and estimated profit. When forming a pricing policy based on demand, the price is determined after studying the demand of buyers and setting prices that are acceptable to the target market. When forming a pricing policy based on competition, prices can be at the market level, lower or higher than them. All three approaches require a comprehensive solution of a number of problems due to the choice of a particular pricing policy.

When forming a pricing policy, a marketer should answer the following basic questions: what price would a buyer want to pay for a product of an enterprise; How does price change affect sales volume? what are the components of the costs; what is the nature of competition in the segment; what is the level of the minimum price that ensures the break-even of the enterprise; whether the increase in sales will be affected by the delivery of goods to the buyer; what kind of discount can be given to buyers, etc.

Before forming a pricing policy, it is necessary to determine the model of the market that the company intends to enter. There are several market models: pure competition market, pure monopoly market, monopolistic competition market, oligopolistic competition.

Characteristic features of the market model of pure competition are many sellers and buyers of any similar product. No buyer or seller has a significant influence on the level of market prices. There are usually no barriers to entry into such a market. The cost of developing a pricing policy is minimal, since the price level is determined by the ratio of supply and demand.

Pure monopoly market model. In this case, one enterprise is the only producer and seller, there is price control, entry into such a market can be blocked. With this model, a special pricing mechanism is not required.

Model of the market of monopolistic competition. With this market model, there are relatively large numbers of sellers and buyers, easy entry into the market, and some very narrow price controls. Such a market requires marketing research and development of a specific pricing policy. In oligopolistic competition, a small number of firms dominate the market. As for prices, they prefer to negotiate, setting a convenient trading margin and dividing the market into zones of influence. This model requires a careful pricing mechanism.

The main stages of the pricing process are: setting pricing objectives; determining the level of demand; determination of costs; price analysis for competitors' products; choice of pricing methods; setting the final price. Pricing objectives are determined by the overall goals of the enterprise. The main objectives of pricing can be: survival in the market (sales support); profit maximization; maximizing market share; gaining leadership in product quality; orientation to the existing position in the market.

If an enterprise operates in a highly competitive environment, when there are many manufacturers with similar products on the market, the main task is to ensure sales (survivability). When choosing a pricing policy, marketers should study the pricing policies and prices of their competitors, the quality of their products. If the company's product is lower in quality than the competitive one, it cannot ask for the same price as that of a competitor. Reduced prices, market penetration prices are usually used in cases where price demand buyers is flexible, elastic; if the company wants to achieve maximum growth in sales and increase the total profit by a small decrease in profit from each unit of goods; if the company assumes that an increase in sales will reduce the relative costs of production and marketing; if low prices reduce the level of competition; if there is a large consumption market, as well as in an effort to capture a large market share.

The main objectives of the enterprise to maximize profits can be: establishing a stable income corresponding to the size of the average profit for several years; calculation of price growth, and, consequently, profit due to an increase in the cost of capital investments; the desire for a quick initial profit, if the company is not confident in the favorable development of the business or it lacks Money. When focusing on profit maximization, the company must choose the appropriate price (high level). Usually in such cases, current indicators are more important than long-term ones.

When performing the task of maximizing market share, the company must ensure the growth of sales. This task is set on the basis that a large share of the market will have low costs and high long-term profit margins in the future. Here you need to know for what period of time it is necessary to reduce prices and to what level.

Solving the problem of achieving market leadership in product quality, it is necessary to give products new properties, increase their durability, reliability, etc. This requires research and development work, which usually leads to high costs and high prices. Improving the quality of products allows you to outperform competitors, but in this case, high prices should be considered by buyers as quite acceptable.

If the goal of pricing is to target the existing market position, unfavorable moves by competitors should be avoided. So, if competitors have reduced the price in order to win a large share of the market, then the enterprise must also reduce it to the limits possible for itself. The opposite situation may also occur, when the price level rises.

The next step in the pricing process is to determine the level of demand. To determine how sensitive demand is to price changes, it is necessary to derive a demand curve for each product, which allows you to establish the relationship between price, demand and supply and characterize the elasticity of demand. There is an inverse relationship between price and demand, when demand decreases with an increase in price or, conversely, a decrease in price leads to an increase in demand. Such dependence is called elastic, flexible. But it can also happen that an increase in price will lead to an increase in demand. Typically, this situation arises if buyers believe that high prices correspond to a higher quality product. At this stage, the main task of the marketer is to establish the relationship between price and demand (elastic or inelastic); setting a price increase or decrease limit at which demand increases; determination of the quantitative relationship between price and demand and the calculation of the elasticity coefficient. Based on this stage, the maximum price of the goods is determined.

Costs have a significant impact on the pricing policy of the enterprise. At the stage of cost estimation, it is necessary to determine the minimum price that can be set for the product. The minimum price for a product is determined by the production costs of the product, its distribution and marketing channels, including the rate of profit. Costs can be fixed, variable and gross. Fixed costs are costs that remain unchanged ( wage, rent, heat supply, interest payment, etc.). They are always present, regardless of the form of the enterprise and the level of production.

Variable costs vary in direct proportion to the level of production. For example, in the manufacture of mobile phones, an enterprise incurs costs for the purchase of special equipment, plastics, conductors, packaging, etc. Per unit of production, these costs usually remain unchanged. They are called variables because their total amount varies depending on the number of units of products. Gross costs are the sum of fixed and variable costs at each specific level of production. For the goods, the enterprise seeks to receive such an amount that would at least cover all the gross production costs.

Marginal cost is the incremental or incremental cost associated with producing each additional unit of output over a given output. Marginal cost makes it possible to determine the unit of production on which the enterprise should focus: change the price of a unit of goods, reduce or increase production.

If costs are reduced, the company can reduce the price or increase the share of profits. With an increase in costs, it is possible to shift their growth to the buyer by raising the price, provided that there is a demand for the product, or modify the product in order to reduce its costs and maintain the price level, or increase it, or remove the product from production as unprofitable. The price must cover the costs, otherwise the production of goods does not make sense. This requires the establishment and analysis of factors affecting production costs and the cost of certain types of products.

When choosing distribution channels, in order to successfully cooperate with participants in distribution channels, one should take into account the need to cover costs and make a profit both at one’s own enterprise and from an intermediary: provide price guarantees, especially when introducing a new product to the market, provide sales promotion measures.

The next steps in the pricing process are price analysis of competitors' products and selection of a pricing method. The prices set by competitors largely determine the pricing strategy of the enterprise, so they should be carefully analyzed. As a rule, buyers prefer a product whose price will match the level of quality. To analyze the prices of competitors, you can use both expert assessments of enterprise specialists and a survey of the buyers themselves. Comparing the quality and price indicators of competitors with those of their own enterprise, marketers must draw certain conclusions about the price level.

Adjustment of prices occurs through changes in price lists, the use of markups, surcharges, discounts, compensations. The implementation of pricing policy, the development of a pricing strategy, their practical implementation require high qualifications from employees marketing services, responsibility for decisions made and creative approach.

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