If the price spirals down, revenue may not be sufficient to cover production cost. It can also mean the profit may not be enough to sustain the business for longer term. A good pricing policy should be able to strike some balance between these two major concerns.

Pricing strategy will also depend on variety of factors. The input does not only include the cost of production but should also include transportation, delivery, and issues like product loss which is common on perishable goods and also weather events that affects the product supply and timetable of construction.

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On level of retail stores, it needs to account for regulatory compliance, personnel cost and utilities. The general strategy must reflect these factors so that the business will remain viable.

In the level of whole sale, there are also similar costs which must be taken into consideration when products are being sold. In both of these levels, pricing strategy should also account for prices that are being offered by the competitors. If a similar or identical product is given at a much lower price, it is of high probability that consumers will opt for that cheaper product.

Line pricing strategy should also reflect the seasonal variation of input costs. Some raw materials and products can be more expensive at certain time of the year than in another time.

Depending on the demand elasticity and how much the competitor varies on their prices, business should be able to devise way to effectively handle these fluctuations. It can keep consistent price which means trading low margin of profit at some point and high margin of profit at another point.

It may also opt to lower price when production cost also falls. At some degree this is also controlled by the degree of competition. If some businesses pass the saving to the public, everyone may be forced to follow so as to keep up with the expectation of the consumers.

Pricing strategy needs to be developed by the introduction of new items. New items can be used to start out lower price and to induce trial purchase. New items may also be started at long-term price along with alternative strategies aimed at encouraging customer to try the items. Use of coupons from manufacturer is one of the strategies that can be employed.

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This allows the consumer to know the up-front long-term price but lowers the price at trial purchase. This will ensure that the retailers will not have any mark up on the price so as to eliminate consumer savings. While this defeats the promotional price purpose, with the coupons retailer will accept and have it sent for reimbursement.

In developing your own pricing strategy, you need first to determine your business objective. If what you intend is to attract as many customers as possible, setting lower end prices can help in attracting customers. If you intend to establish the business as providing high quality products and services, you can set the price at higher ends to convey the message.

You must also be able to analyze the pricing strategy of your competitors. You should be able to take a closer look of what the other businesses who target the same market are charging for their products or services. If they have online portals, you can review the prices that are publicly known.

Pricing strategy also perform numerous functions when it comes to the marketing program of the business. The price set is the direct and fast way of communicating with customers. Since the price is visible to customers, it can be their basis of comparison with other brands.

It can be used to position your products and services as high quality. Your pricing strategy also offers you an easy way of quickly attacking competitors or it can also be used to position the business away from any direct competition.

Because the prices helps in determining financial performance, pricing strategy helps in impacting the financial statement of the business for short and long terms.

Prices may also be used as a substitute for sales promotion and advertising in addition to it being used in order to reinforce the activities in a marketing program. To illustrate, pricing strategy may be used as incentive in order to channel members as focus of promotional strategy or as a sign of value.

Determining pricing strategy for the products and services may not be a very simple task. But, having your time invested on it will help in maximizing the earnings and allow you to focus more on delivering results to the customers.

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