Pricing policy

The price policy (also price management ) is part of the marketing mix of a company and deals with the analysis, determination and monitoring of prices and conditions of production or services. The aim of the pricing policy is to set optimal prices for the company in relation to the company's goals (e.g. profit maximization , customer satisfaction , growth).

General

An important decision problem is the lower price limit . The upper price limit, on the other hand, is determined by demand . Basically, it lies where the price perceived by the customer corresponds to his appreciation of the product. Pricing policy but also as purchase price policy used for procurement policy objectives. Due to the predominance of the manufacturer's point of view in marketing theory, which usually understands consumers as consumers as buyers of the products, both the (sales) pricing policy aimed at commercial customers and the strategies and tactics of purchasing or procurement price policy can easily be overlooked. As a rule, the buyers of industrial products are initially entrepreneurs and not consumers. The (sales) price policy of the retail trade is primarily aimed at the latter ; Trade marketing is dedicated to this , as is the (purchasing) pricing policy aimed at commercial suppliers. The pricing policy includes all measures for:

Formation and change of prices
Pricing and differentiation of prices
Determination of sales conditions ( conditions management )

Customer service development.

Cost-oriented pricing policy or lower price limit

In the case of production companies , the lower price limit is based on partial cost accounting or full cost accounting , which take into account, for example, production and material costs. It should be noted that at least the variable costs for the product, such as B. Material costs , hourly wages and energy consumption are covered. This is the short-term lower price limit . In this case, the contribution margin is zero. If both the variable and the fixed costs (e.g. room rent, depreciation for machines, storage rooms) are covered by the price, we are talking about the long-term lower price limit . The long-term lower price limit indicates the breakeven point at which the total costs are covered and the profit is zero. With the cost-oriented pricing policy, the amount of the price to be charged is not determined, but it is the basis for the decision whether the production and / or sale of the good is worthwhile at all.

In trading companies who calculate sometimes for thousands of items in stock, selling prices and to revise, if necessary in the short term, the problem is different. In retail, neither all costs can be allocated to each individual item in a manner that is accurate and timely, nor does the above-mentioned. short-term lower price limit. Even the cost price of a product, which has an imputed signal effect and at which no contribution margin is generated any longer - if it falls below this, one speaks colloquially of "lost items" - can be undercut for a short time. Reasons for such a more tactical than strategic pricing policy are e.g. B. Special offer, reaction to competitive prices, stock clearance or targeted "competitive price" campaigns. Losses from items without a contribution margin (equalizer) must be compensated for by higher priced items (equalizer).

Market-oriented pricing policy or optimal pricing

The market-oriented pricing is based on the prices of the competing companies as well as on the behavior of the customers. It usually has the goal of maximizing profit . There are exceptions, for example if a competitor is to be forced out of the market or a new product is to be introduced. In order to determine the maximum profit price, the type of market (monopoly, limited monopoly, etc.) must be taken into account, the behavior of competitors must be analyzed and intensive sales research must be carried out.

This can lead to very different pricing strategies depending on the market. An important aid here is the price elasticity of demand and supply. In general, it can be said that the (low) price is a “false” preference among customers . If the price rises and a competitor is cheaper, the customer switches to the cheaper provider. The price elasticity of demand can be used to determine the extent to which customers react to different price changes. If the elasticity is low, the prices can be varied relatively widely without the customers reacting excessively, i. H. Hardly any customers leave when prices rise. In this case, there is a “real” preference which prompts the customer to remain loyal to the provider in question despite the increased price.

The existence of preferences also nullifies the uniformity of the market price. Buyers who prefer a certain brand are willing to pay a higher price than for comparable competitive services. The resulting leeway in terms of pricing policy (monopoly area) is characteristic of imperfect markets.

In the context of market-oriented pricing policy, measuring the willingness of consumers to pay plays an important role in pricing.

Special cases and extension

Price differentiation and price bundling are special cases of the sales market-oriented pricing policy . According to Heribert Meffert , the pricing policy also includes the customer-specific design of the service and payment conditions .

The pricing policy in retail is a specialty . It is fundamentally oriented towards the sales and procurement market. In contrast to industrial pricing policy, retail pricing policy is usually not limited to the optimal determination of the sales price of each article, but rather is aimed at determining the cost and sales price of each article, and therefore tends to optimize the trade margins . Because of the wide range of goods-service combinations in each range , a trading company can use the so-called balancing or mixed calculation . H. For individual articles, set the sales prices even below the cost price, if compensation is made through higher margins for other articles. This enables a trading company to set competitive impulses in terms of price policy at any time (e.g. through special offers or comparative prices), to react to competitive prices (e.g. through competitive prices or peaceful price adjustments) as well as the price strategic and tactical possibilities of retail psychology (e.g. . through a price guarantee or arousing price expectations). For this reason, the “art of calculation” ( Schenk ) for retail companies is less about optimizing purchase and sales prices for each individual item than about achieving an optimal price structure for the range.

Pricing strategies

Before a product is launched on the market , it must be decided which pricing strategy should be used for the product. A distinction is made between the fixed price strategy, price competition strategy and price sequence strategy. The chosen pricing strategy is the foundation for a company's pricing policy. It has a major impact on the elements of the marketing mix .

Fixed price strategy

High price strategy: The price is set at a high price level (also: high-price segment , possibly as a niche product alongside other products). This can be due, for example, to a desired quality leadership or a brand strategy .

Low price strategy

Yield management: The price is determined using a dynamic price differentiation model depending on the demand functions that are already known ( dynamic price management ). In addition to skimming off maximum willingness to pay , yield management also serves to control capacity, for example for airlines.

Price competition strategy

The price competition strategies are similar to the fixed price strategies. The difference is that the price changes over time, but the order of the participants remains the same. Ie the price leader still has the highest price in comparison, etc.

Price leader: The price leader has the highest price in the relevant market and the highest market share.
Price follower: Here the price is continuously adjusted to that of the price guide. However, the price of the price follower is slightly below that of the price leader.
Price fighters: The price fighter has the lowest price in the relevant market (also known as the price leader).

The price leadership , however, is the pursuit of the lowest price with a ruinous possibly low price strategy. So the price warrior achieves price leadership, not the price leader.

Price sequencing strategy

Here the price is changed according to plan over time. A distinction is made between two strategies:

Absorption strategy (skimming pricing): Here, a high starting price is gradually reduced over time. This means that the maximum price can be skimmed off for each group of buyers and the development costs are amortized.
Penetration strategy (penetration pricing): Here, a low starting price leads to strong sales growth and a high market share. This price can be held, lowered or increased later. Competitors can be deterred by the low prices (creation of a market entry barrier ), which also enables later price increases.

Edgar A. Filene developed a revolutionary price sequencing strategy in the retail sector in his Boston department store founded in 1909 , the "Automatic Mark Down System": The price label on each item contains the day it was placed in the sales room. The longer an item remains unsold, i. H. As the storage period increases, its selling price (and thus its trading margin ) is systematically reduced, initially by 25 percent, then by 50 and finally by 75%. At the same time, the reduced items move to the basement, which is why this strategy is also known as the “basement system”.

Further design tools

The pricing policy also includes discounts , namely granted discounts as a means of sales price policy or requested discounts as a means of purchase price policy . They are often used rather than “real” price cuts, as these are very difficult to reverse. Consideration is expected from customers for discounts and they can be limited in time. Examples are volume discounts, loyalty discounts, bonuses, and performance discounts . This is also called nonlinear pricing because the price does not change linearly with the quantity. Discounts are not a price policy instrument, but a means of conditions policy. Discounts are interest reductions for the failure to use supplier credits or payment terms .

According to Schenk, retail companies also have numerous options for psychotactic and psychostrategic pricing policies . Examples: price presentation, price optics, permanent low price, guaranteed price, price differentiation, cost-plus system, comparative price , preference for certain final digits, generation of new or consideration of existing price expectations.

literature

Hermann Diller: Price Policy . 4th edition. Kohlhammer, Stuttgart 2007, ISBN 978-3-17-019492-2 .
Mirko Düssel: Practical basics for active pricing. Optimal pricing for more sales, greater customer satisfaction and higher earnings. Scriptor, Berlin 2005, ISBN 3-589-23510-1 , ( The professional 1 × 1 ).
Franz-Rudolf Esch , Andreas Herrmann , Henrik Sattler : Marketing. A management-oriented introduction . 2nd Edition. Vahlen, Munich 2008, ISBN 978-3-8006-3488-0 .
Richard Geml, Hermann Lauer: Marketing and Sales Lexicon , 4th edition. Schäffer-Poeschel, Stuttgart 2008, ISBN 978-3-7910-2798-2 .
Christian Homburg , Harley Krohmer : Marketing Management. Strategy, instruments, implementation, corporate governance. 2nd Edition. Gabler, Wiesbaden 2006, ISBN 3-8349-0063-X .
Christian Homburg, Harley Krohmer: Basics of Marketing Management. Introduction to strategy, instruments, implementation and corporate governance. 2nd Edition. Gabler, Wiesbaden 2009, ISBN 978-3-8349-1497-2 .
Hermann Lauer: Conditions Management. Design and enforce payment terms optimally . Economy and finance, Düsseldorf 1998, ISBN 3-87881-124-1 .
Heribert Meffert , Christoph Burmann , Manfred Kirchgeorg : Marketing. Basics of market-oriented corporate management. Concepts, instruments, practical examples . 10th edition. Gabler, Wiesbaden 2008, ISBN 978-3-409-69018-8 , ( Meffert Marketing Edition ).
Thomas T. Nagle, John E. Hogan: Strategy and Tactics in Price Policy. Make profitable decisions. 4th edition. Pearson Studium, Munich 2007, ISBN 978-3-8273-7237-6 .
Patrick Pfäffli, John-Oliver Breckoff, Stefan Michel: Price Excellence. Strategies to increase profitability . Versus, Zurich 2015, ISBN 978-3-03909-187-4 .
Hans-Otto Schenk: Psychology in Commerce. Decision bases for trade management . 2nd Edition. Oldenbourg, Munich et al. 2007, ISBN 978-3-486-58379-3 .
Hermann Simon , Martin Fassnacht: Price Management . Strategy, analysis, decision, implementation. 3. Edition. Gabler, Wiesbaden 2009, ISBN 978-3-409-39142-9 .
Hermann Simon: Prices. Everything you need to know about pricing. The exclusive knowledge of the leading price experts. Campus, Frankfurt / Main 2013, ISBN 978-3-593-39910-2 .
Kurt Thieme, Rainer Fischer, Michael Sostmann: Price Pressure? So what! How top sellers negotiate prices successfully. 5th edition. Avance, Uffing 2012, ISBN 978-3-9810226-1-2 , ( Pocketline ).
Bernd Weidtmann: Basic knowledge of business administration. 3. Edition. Klett, Stuttgart et al. 2006, ISBN 3-12-886502-7 .

Individual evidence

↑ Price Management Gabler Wirtschaftslexikon, accessed on August 18, 2016
↑ Price strategies: Price competition strategy, central office for teaching media on the Internet (PDF). Retrieved March 4, 2014

[1] Price Management Gabler Wirtschaftslexikon, accessed on August 18, 2016

[2] Price strategies: Price competition strategy, central office for teaching media on the Internet (PDF). Retrieved March 4, 2014