3.2. Marketing & Sales

Pricing policy

Pricing policy describes what market prices are possible for the products and services in the market. A pricing strategy from the sales perspective must be developed.

From a marketing perspective, the market price must be determined. It must indicate at what conditions and with what prices the products and services can be offered in the market. The market price is in tension with the cost price of one's own products and services. When determining the pricing policy, it is necessary to work out what prices the competitors have and how they calculate their market prices. Only when the market prices are known and one's own cost price has been determined, can the sales price be established as the final result of the calculation.

The pricing strategy has to take into account the competitive situation of the company. In competition, it can be assumed that prices are always under pressure. The profit shares in the price are usually only a few percentage points. The profit margin helps to decide which strategy is realistic for the pricing policy. It has to be decided whether a high price strategy, a normal price strategy or a low price strategy is the right one.

As a rule, it can be formulated: A high price strategy requires an excellent offer and target customers with purchasing power. A normal price strategy moves at the level of the market price. A low-price strategy must offer high quality at low prices.

Those who "dump prices" want to undercut their competitors. As a rule, this means making offers below the market and cost price. The selling price does not cover costs. It is sold at a loss. This strategy can only be sustained for a certain period of time in order to drive competitors out of the market. It requires enormous capital, because the losses have to be financed. Such a strategy is only suitable as an investment in the future of the company in order to achieve a monopoly position in the market in the long run. The great unknown is the capital strength of the competitors, which can trigger the company's own ruin if the losses cannot be refinanced by the hoped-for additional market shares.   

In marketing, rebates, bonuses and discounts play just as important a role as delivery conditions and terms of payment. Which customer, which benefits are to be granted, must be defined. These conditions represent incentives to buy, which in reality cost different amounts. The behaviour of competitors must be determined.

When considering pricing policy from a marketing perspective, the structure of supply and turnover must be taken into account, as well as considerations of cost recovery. The calculation of break-even can be helpful for pricing policy. Break-even determines the sales volume that is necessary to reach the break-even point.

Pricing policy is about:

• Market prices, cost prices, sales prices
• Maximum prices, normal prices, low prices
• Dumping prices
• Rebates, bonuses and discounts
• Delivery conditions
• Terms of payment