Demand Based Pricing

What is the best price a vendor can charge for his product?

One of the most difficult, but the most important factor, the vendor must decide as an entrepreneur is how much to load a product. While there is no one only way to determine price policy, luckily there are some guidelines that help make this important decision.

There are certain pricing rules, such as pricing on a competitive basis, cost pricing, perimeter pricing, demand-based pricing, supply-based pricing, etc. that sets the thumbs rule to determine prices. These principles are determined in the characteristics of the product and prevailing market conditions.

Retailers face the complex task of setting and changing prices for many items they carry. A typical grocery store in the United States now has about 31,000 items in hundreds of product categories (Kahn and McAlister 1997). Each week, vendors change the price of over 4500 items (Levy, etc., 1998). In addition, the sheer number of changes in price fluctuations have led to the complexity of the reasons expressed in the price changes of buyers.

Advanced demand-based forecasts based on scanning information, varied manufacturer discounts, push toward brand management and market information on price competition retailers can all be relevant and have been included in recent analytical research (such as Basuroy et al., 2001, Kim and Staelin 1999 , Wedel et al., 2004). Recently, Nijs, Srinivasan and Pauwels (2006) conclude that when retailers rely on previous prices to set prices in the future (ie price stability, price density or price pressure) pricing is associated with higher category areas.

Often we see many articles that talk about different price-related methods, reasons behind using certain methods and so on. All of this is so-called pricing-based retailers, with the aim of increasing their profits.

Let's see some of the advantages of retail demand:

1. To set retail price brands in categories with higher purchase rates.
2. To set the retail price of brands in categories with a larger number of SKUs.
3. To set the retail price of brands in growth categories.
4. To put the retail price of a brand in storage.
5. To put the retail price of a brand with a greater share of a private dealer.
6. To set brand retail prices with more product lines.
7. To set retail price high quality brand.
8. To set retail price brands with greater demand sensitivity.
9. To put the retail price of brands in animal categories.
10. By setting the retail price for products with deep discounts from the manufacturer.

Firms that are well known and have a strong understanding of these principles categorize the conditions where retailers rely more on demand. Our insights offer a great opportunity for retailers to evaluate their price structure and help them make timely, meaningful decisions.

References:
1. Basuroy S., Murali K Mantrala and Rockney G Walters. 2001. Effects Category
Sales at Sales Price and Performance: Doctrine and Evidence. J. Marketing 65
(October), 16-32.Benkwitz, Alexander,
2. HelmutKahn, Barbara E., Leigh McAlister. 1997. Food Breakthrough: New Focus on Consumers, Addison-Wesley Pub. Co, Reading, MA.
3. Levy, Daniel, Mark Bergen, Shantanu Dutta, Robert Venable. 1998. Pricing of
Variety of retailers. Administrator and decision economics. 19 81-120.
4. Nijs, Vincent, Shuba Srinivasan, Koen Pauwels 2006. Retail price of drivers and distributor profits. Marketing Sci., Incoming.

Source by Jethendra B K

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