Initiating to Price Change
After goods have been produce, price is determined on the basis of its cost and taking reasonable profit. The price so determined may also need changes. Due to external and internal environmental effects, prices may need changes. Two main strategies can be adopted in leadership pricing as follows:
1. Initiating price cut
Every business firm wishes to increase its sale quantity. Changes in price may be needed to achieve such objective. So, the producer should cut down necessary amount of leadership price of the products. Sometimes companies’ products can enter in more markets segments only after cutting down prices. This strategy should be adopted in order to face strong competition. Otherwise, there may appear a situation either to quit the market segment or abandon the production. On the other side, there may be a compulsion to cut down prices of products to control the target market segments.
2. Initiating price increase
Sometimes a strategy to increase in price may be adopted not affecting sale quantity. Price may need some changes due to cost inflation. Price may need changes due to government’s policy to control price or to increase revenue. On the other hand, demand for products may grow suddenly. In such situation, one needs price change. In the situation when all continuations are suitable, price may be increased according to the time. However, such increase should be very low in percent. Price should not be increased at the rate which may spoil the image and competition of the company.
Responding to Price Change
While changing price of any products, many reactions may come from concerned sides. At first reaction may come from consumers. Such reactions may be positive when price is cut down and negative when it is increased. The company should carefully as well as logically answer both reactions. In the same way, competitors’ reactions may also come. The company should give satisfactory answer to them with all reasons such as cost, market study, transport expenses, administrative expenses, etc. The following strategies should be adopted to face reactions of competitors and distributors.
1. Maintaining Price
The producers should try their best to maintain price at the same rate. Producers may cut down some percent of profit. The existing market segments can be maintained with such strategy. Along with this, opportunity can be found to enter new market segments. In this way, sale quantity may increase.
2. Increasing price and quality
Producer may increase in existing quality and price. Production companies may bring in markets the new products or adding new features to the products challenging their competitors. Little more prices of such products do affect competitors so much. However, such analysis cannot last long. Other competitors also may adopt such strategy. This may be only a periodical means to stop competitors’ reactions. After sometime, the company should seek other alternatives.
3. Reducing price
Most of the customers become conscious about price. So, the producer should cut down the price of the products after certain time. Competitors of similar products also may adopt this strategy. The producers who cannot adopt such policy may get compelled to quit main market segments among many segments. Such markets once quitted need very hard labor to supply products to there again. Policy of taking low percent of profit should be adopted. Even decreasing price, quality, features and services should be maintained same. Only then, products can control markets.
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