Pricing Determining if Pricing Needs

Pricing

Determining if Pricing Needs to Be Transaction or Value-Centric

To reduce pricing purely to the transactional aspects of its value as part of positioning, marketing and branding strategies, and most importantly, profitability, is to completely miss the point of revenue management. The concept of any product or service having inherent value, and therefore worthy of a given market price can be seen in the dynamics of stock and equity exchanges globally, in addition to the pricing of airline seats the close a departure date is relative to the purchase date (Dunleavy, Phillips, 2009). Pricing needs to be value-driven to be relevant, to trivialize it as purely a transactional aspect of doing business is to completely miss the point of differentiating entire companies in the value they deliver.

The Many Roles Pricing Strategies Play In Companies

Underscoring the need for taking a more value-based vs. purely cost-driven approach to pricing are the many roles that pricing strategies are responsible for within all companies, regardless of the products or services they provide. Pricing optimization that takes into account availability of a limited product or service, time horizon to deliver it, and cost of substitutes is the constraint model airlines, sports team, entertainers and entertainment companies rely on to gain the greatest pricing advantage. Pricing optimization as a critical strategy in services businesses continues to be empirically evaluated, proven and refined (Dunleavy, Phillips, 2009).

When value-based pricing strategies are created the entire supply chain, sourcing, procurement, and services organizations are strengthened and made more stable as a result (Marn, Roegner, Zawada, 2003). This makes it possible to create price waterfall analyses (Marn, Roegner, Zawada, 2003) that show how specific percentages of a given gross margin percentage are allocated throughout a distribution network. Value-based pricing ensures a consistency to these margin allocations over time, not varying depending on the rise or fall in the cost of materials. This aspect of pricing stability is crucial to the stabilization of a company's brand and reputation over time, as pricing is often seen as a critical aspect of market positioning as well (Smith, Nagle, 2006). Value-based pricing is critically important in B2B marketing and selling scenarios as well, as the value delivered by enterprise software for example determines the percentage of maintenance paid every year (Hinterhuber, 2004). These maintenance payments yearly form the foundation of Oracle Corporations;' viability, in addition to many hundreds of other enterprise software companies. As a result of the critical role of value-based pricing in market positioning, companies have created pricing and revenue management enforcement strategies (Roll, 2009) to ensure their resellers, channel partners, dealers and service organizations do not price below the minimum threshold and I so doing erode the market position as defined by the premium price.