How organization achieve profitability through strategic pricing

Chapter Two: Literature Review

2.1 Introduction

In this chapter, various aspects of price strategy will be covered. In the first half, the importance of pricing and how pricing strategy effects different companies with different aspects. In the Second half of the chapter the questions like how different organizations adopt tactic of pricing and make a leading hold in market, how external and internal factors effects organizations pricing will be discussed.. This report will also cover various types of price strategies which companies generally use: price skimming, penetration pricing, expansionistic pricing, and other factors which influence pricing, role of pricing in production. Further a case study will be discussed in this research related to a retail company which follows low price strategy and up to what extent there price strategy is successful and how efficiently they capture market share, finally move further with the customer satisfactory level towards companies.

2.2Importance of Pricing

If the price of the product is correct and aligned with the current market situation then the company will reach breakeven quickly and effectively and generate profit. The volume and profit will also be affected positively through the right pricing and on the other hand the volume may be decreased as well.

The quickest way for a firm to earn profit is to set a right price for its product. Profits will be boosted with the right price and volume will be affected positively as well. On the other hand if the price set by the company is not right then the profits will be affected negatively. As pricing play a vital role in the organization profit margin because pricing is the only source of revenue for all organizations, thus pricing is the most sensitive approach.

As A.R. Oxenfeldt, 2004 has remarked, the detail analysis of prices he suggested that every pricing is unique in some important respect. “No fairly simple explanation of pricing, like the law of supply and demand, has been uncovered; pricing is more an art than science”. In my view price of any organization is effected by the demand and supply , as organizations check the level of demand and supply which effect the pricing of organization.

Whereas it is true that demand and supply are very important factor which organization need to keep in mind before fixing the price , because demand and supply enable the organization to analyses the accurate position of company product and other competitor product in the market , on the bases of demand and supply company can forecast the profitability of the company.

Whereas Cunningham and Dianne, in Management Decision (London) 2004.vol 31. Says “Pricing is like a tripod and it has three legs and in addition to cost there are the two other legs of market demand and competition”. It is true that Pricing impact financial performance and has an important influence on buyers' perception and positioning of brands. The chosen price directly influence demand level and determine the level of activity. A price set too high or ...