Service pricing strategies and cost considerations in business planning

Marketing Strategies

Competing in today's economy, demands that a business find ways to break out a commodity status to meet customer needs more than competing firms do. A sound marketing strategy requires effective planning; this helps a business to capitalize the opportunities present in the market and leverage their strengths. Service businesses and firms encounter a number of unique cost considerations that need to be addressed when formulating service pricing strategy. Service pricing is not often finalized until after provision of the service; hence the consumer faces a lot of price uncertainty. Product line pricing tends to be more complicated. The opportunity for illegal pricing is greater in services than in goods.

The overall profitability of a business can be assed by examining change and firm or business profitability. An enterprise gross margin can be used to measure the contribution of the enterprise to a business. The sum of business s gross margins minus the fixed costs of the business equals profits or loss. However, gross margins ignore fixed costs; because they do not directly measure profit for the business. To draw conclusions about setting prices, different areas should be put into consideration; the balance between cost and production, and customer marketing considerations, on the other hand. The latter must have some priority to the typical competitive situation.

Price setting

Price analysis begins with definition of market target and macro segment strategy. The relationship between industry price level and the level of demand should be estimated carefully and, the segment market potential should be accurately determined. Once the analyst has determined the correct positioning of the business, the next step should be estimation of all relevant costs. This will assume certain levels of demand and production (fixed or variable marketing costs and production costs). Legal regulatory matters should also be considered, especially those directly related to pricing.

Costs are determined by demand and supply curve; a business can use cost-based pricing, which add markup after costs. Costs can be determined by a breakdown analysis where the minimum sales volume of a product is determined; a certain price must be generated to cover certain costs. There are other alternative pricing strategies like; competitive pricing, penetration, skimming and everyday low pricing and discounting. Skimming sets high prices to recover costs and then lowers it. Penetration lowers prices and raises it later. Competitive pricing matches the market price but has the no-price benefit of a product.

Temporary price promotions

Temporary price promotions or discounts are offered to induce trial or to overcome consumer resistance. These other methods like penetration and skimming is like temporary price promotion; they should be used because they increase sales and profits at a certain time. Temporary price promotion also make consumers favor uneven amounts or amounts that sound less than they actually are; it also indicates a sale of an item. While using these promotions, long-term impacts should be considered so as to avoid negative impact on brand equity.

Product discrimination

Uniform pricing can be a potent generalization for most retail markets; however, examples show that different pricing fro the same goods, to different people can also be of economic benefits. A doctor can charge a rich patient more than a poor one or insured patients more than uninsured ones. Transferability or demand of a product may induce retailer or producer to induce discrimination. First degree discrimination is considerable discrimination. The producer with reasonable assumptions will increase quantity spectrum after having information about aggregate demands and not individual demands; thus succeeds in capturing the entire consumer's surplus. This occurs when consumers have unit demands and the producer knows each consumers reservation price and can prevent arbitrage between consumers. It then suffices for the producer to charge individualized prices, equal to the consumer's reservation price. Third degree discrimination should also be used, where the producer observes a signal related to the consumers preferences like, age, occupation and location.

SLP IMPROVEMENTS

b) Improvements of SLP through feedback

The SLP has also improved through feedback where the instructor confirmed that the right steps were being taken after completion of each section. The feedback has helped to realize where there is little or no improvements hence has, been a guide to the right direction to improve the SLP. The instructor was asked different questions that arose while undergoing different stages, hence helpful in the success of SLP.

Conclusion

The aim of the SLP is to use effective application of market competitors to achieve different objectives. The ultimate pricing decision faced by most firms is determining the price that sells the service while at the same time offering a profitable return. Despite the fact that companies spend a lot of money developing their images, establishing a brand preference and creating a differential advantage on the mind of their consumers, the companies often become paralyzed when faced with competitors offering lower prices. This at the end demands that the companies set, prices as opposed to engaging in strategic pricing activities. The disparity amid price-setting and strategic-pricing is the distinction that takes place in correspondence to reacting to market conditions and managing them proactively. Strategic pricing should be based on cost, demand, profit, customer, competition and legal considerations.