Pricing Decisions

Pricing Decisions Student: Professor: Course title: Date: Pricing Decisions The price of an item is an important component of decision making in procurement, but is not the only factor for a final decision. Write a 3-4 page, APA style paper that reviews the overall components of a pricing strategy. Include examples from external research to support your views. Apart from considering the right price when making procurement decisions, other factors such as the right timing, source, material quality and quantity should also be considered before making the final decision. Determining how much to price products and services is one of the most significant decisions that a company makes. The pricing decisions must always be very carefully considered. The prices of services and/or goods are expected to cover not just production and promotion costs, but also distribution costs and a reasonable profit (Benton, 2010). When products and/or services from different companies are of similar quality, a buyer in a competitive environment is more likely to go for the products or/and services which are at the market price, neither too high nor too low. There are several components of a pricing strategy as pointed out by Benton (2010). The first one is Economic Price-Setting Strategy, whereby pricing strategy is based on the cost analysis, like it happens in the chemical industry. The next strategy is whereby the company applies the market-based approach. This is mostly applied in the computer industry. By using this economic pricing strategy, a company can sell its goods below its total cost, but at some point, it will be expected to either make a profit or quit operations. Benton states that an intelligent person should first compare costs and prices from different suppliers before making a purchase. He adds that the buyers’ perception of service and quality is also important when deciding to buy a particular product or service. Benton adds that the buying firm has to determine whether the buying price fits its competitive cost arrangement (2010). The second pricing strategy is the Psychological Price-Making Strategy. Benton (2010) points out that in a buyer; power is a key psychological influence. He continues that no matter how powerful a buying firm is, it should try to get a fair price, and the purchasing or procurement officer should first ask the supplier how much discount the company can receive if it buys from the supplier. Some of the popular discounts a buyer can receive from the supplier include cash discounts and the customer receives it for instance if the payment for services or goods has been promptly remitted. There is also the trade discount, which is the compensation a buyer obtains by eliminating the intermediaries or distributors from the transaction. The buying firm is provided with an...