Pricing strategies are vital for a business with high competition. Cost accountants indulge in cost and pricing strategies. The pricing strategies are interrelated processes of cost of production, cost control strategies, market competition, and number of competitors in the market, number of new products in the market, reputation or brand value of the company and business goals. The goal of the business includes the financial, legal and moral view of the company. The blog examines the relationship between business goals and pricing strategy in a few instances. Cost accountant’s contribution to the manufacturing and banking sector is important due to price fluctuations.
Business goals and pricing strategies:
Small business owners think more about price fluctuations. The pricing strategy of a small business owner depends upon the demand, market conditions, and cost of goods sold. The pricing strategies used by small and large business owners are listed below.
The strategy is for new markets and products. If the customers are new to the product, it takes time for the sales pitch. The penetration pricing, name explains the penetration of the market. The price is comparatively lower than the competitors. The penetration price helps to change new buyers to regular buyers. This pricing option is only for a short period and not for a long period.
The best example of penetration pricing is Netflix. The streaming company offer a special deal for the first six months. During the promotion period, the customers get offers and promote the latest shows through advertisement. Another example of penetration pricing is Reliance JIO. The company entered the telecommunication market through penetration pricing.
The price skimming strategy is for products with new features and trendsetters. The seller sells the product initially at a high price. Then, later the seller reduces the cost and sells. This pricing strategy also develops security. The price skimming strategy provokes the competitors.
The best example of price skimming business strategy is the Apple iPhone. The new model iPhone hit the market with high prices. After the launch from rival companies, the price goes down.
Competitive pricing follows the competition in the market. The price is to drive the customers towards the product. The competitive pricing increases the competitive element in the market.
The best example of competitive pricing is Uber and Ola. Companies with similar businesses offer timely discounts and monitor the operations of rival companies.
Loss leader pricing;
In the concept of loss leader pricing, the price is set as a minimum to attract customers. The purpose of loss leader pricing is to make the customer buy additional items after completing the shopping tenure. Many retailers, keep one product for loss leader pricing. Loss leader profit increases the sales volume of the customers. It is also associated with the bundle pricing.
The best example of loss leader pricing is Walmart and Saravana stores. The retail shops offer multiple products from electronics to groceries. By selling products at low prices, the retail shops increase the sales revenue.
The premium pricing strategy focuses on the quality of the product. The price is high to explain the advantages and value of the product. The seller offers high price and promote the positive points about the product to attract the customers. The premium pricing option is suitable for brands with luxury.
The best example of premium pricing is the software companies like Hub Spot and Salesforce. Premium pricing increases the profit margin and brand value.
Value pricing is followed in companies with reputations. Companies with reputations understand consumer behaviour, motivation factors, customer reviews, reputation and market competition. The value of the customer to the product is given more importance here.
The best example of a value pricing strategy is Apple iPhone.
The psychological pricing strategy is more customer-centric. The price makes the customer happy. Attracting customers with numbers is the trick behind psychological pricing.
The best example of psychological pricing is Bata shoes. In Bata, the price ends with odd numbers like 299 or 499. The purpose of this charm price is to make the customer happy with less price. Offering prices below MRP price and mentioning the savings to the customer also comes under psychological pricing.
The dynamic pricing strategy reflects the market demand and supply. This pricing strategy helps to understand the peak period of demand for a product.
The best example of dynamic pricing is Uber. The fare is high during the rainy season. The taxi fare is according to the demand and supply of the drivers.
Difference between price competition and non-price competition:
Price competition is for the products and services that have substitutes. Competition is the key factor in the price competition. Non-price competition shows the quality of the product. The brands with quality, competitive advantage, unique selling models, and good customer service fall under non-price competition. Companies believing in non-price competition spend money on sales promotions, advertisement, brand management costs, free delivery services, marketing campaigns and gifts to the customers.
Role of cost accountant in pricing strategies:
Cost accounting deals with information regarding production, cost, profit margin, sales revenue and selling price. Cost accountancy links production and strategic management.
- Management policy: Cost accountants contribute to the success of the business. He frames management policies and prices according to the competition.
- Manufacturing data: Cost accountants record and compare the cost of production. The data from the cost of production like direct material, overhead and direct labour throws light on cost reduction and budgeting.
- Marketing data: The cost accountant records and checks the marketing data to understand the competition. He makes this pricing decision after implementing different strategies.
- Transfer price: Cost accountants fix transfer prices after strategic thinking. Transfer prices are decided after checking the cost, expenses and profit margin.
- Cost differences: Cost accountants mitigate costs between different branches and products. The mitigation and strategic pricing decisions enhance profit.
Cost accountants handle the real-time challenges in the business. The contribution of the cost accountant goes for short and long-term profits. The financial data, economic fluctuations and cost accountancy methodologies are the inputs used by a cost accountant for pricing strategies.