Essay Sample on Pricing in Modern Economy: Signaling Supply & Demand

Introduction

In the modern economy, pricing is a very major factor to consider in order for the existing business cartels and organizations to make a clear view and attain their needs and set objectives. The concept of pricing can be used in signaling the situations of supply and demand. Both high and low prices help a business to realize something crucial that is used during the business planning process.

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For example, high prices in the market show existing of shortages of a particular product in a market, however, lower prices of products symbolize surplus in the market. This creates a supply and demand motion, and the two can be used interchangeably to predict for another (Hague, D, 2018).

Since pricing is considered during business planning, common mistakes in mistakes should, therefore, be avoided as much as possible because it has got diverse effects on the business itself and its consumers as well. Some of the most common problems in pricing might come as a result of:

• Lack of proper revision of the set prices.
• Independent price setting without the involvement of other market changes and trends.
• Failure to correctly vary prices correctly for distinct products.

In fact, in the process of coming up with the price wars from other firms in the market, some big businesses end up dissolving because the cost of production expected of them may be too high than the potential return that the business may predict. Some businesses may also transfer their market operations to a different market that suits their needs and demands, the effect of price changes in the market is, therefore, a vital determinant towards firms' success (Hague, D, 2018).

In the case study in this essay, Johnson & Johnson brands in baby products are discussed into detailed form regarding the methods or strategies that the company may use to alter prices in the market successfully to ensure that the business operations are not tampered with under circumstances (Murphy, M. C., & Dweck, C. S, (2016).

Pricing Strategies Employed

There are different forms of pricing that a business may adopt to effectively achieve the process of pricing. Market penetration pricing, price skimming, optical pricing, bundle pricing, product line pricing is some of the major options of price strategy that Johnson and Johnson company would adapt to effectively set the prices for their baby products in the market and ensure that they compete favorably and the company's net profit increases (Nagle, T. T., & Muller, G, 2017).

However, implementation of any kind of strategy calls for a proper plan, lower pricing than that of their competitors in the market may lead to comparative effect in the volume of sales, it may arise due to the massive attraction of more customers, it may also reduce as well due to the lack of trust in the products, as some of the customers believe that when the prices are too much low, then the quality of the product is not to the required standards (Schertler, A, 2016).

Johnson and Johnson company can employ the use of product line strategy. This is where the manufactures create a good line with its retailers in the supply chain, management, so that the retailers can properly categorize the products in order of their quality, the product is appropriately grouped and then prices with comparative range of gaps set for them, this ensures that each and every customer finds what he /she intends to buy or what they can manage to purchase just as stated in the law of demand, "the ability of a consumer to be able and willing to buy the product at a certain price at a given period of time" (Tone, A, 2018). An appropriate planning process should be developed so that a company does not experience difficulties and losses during the planning objectives.

Planning Process for Market Pricing

Market demand should first be established, and predict the effects of price changes in regards to price in regards to that particular product. The prediction is possible by drawing sketches of demand curves and supply curves and how they affect the specific market, the competitors operational costs can, therefore, be determined, this is to give a rough idea of what amount of costs the business will also require to introduce a new product, this information of competitors costs can also be used to outshine them in the market.

A proper pricing method should then be selected that suits the demand of the business, the strategy selected should also be customer and organization friendly in the sense that it led to gaining in both ends a] unless this is not speculated in the core objectives of the business. Before coming up with a method of pricing, the core purposes of the need for pricing all other actives some of the common business's objectives include maximum, market skimming, and product quality leadership.

In the market, various business people or firms use different strategies in order to create a strong field of competition. They may include;

Market Penetrating Pricing

This is the kind of strategy used by a business with the main aim of customer attraction as a result of new product penetration into the market. During the launching of the new and testing its effectiveness, a lower price is set for the product or the service, with an aim to lure customers from other competitors. It may lead to an increase in the sales volume and this can lead to the use of low production costs by the firms and quick inventory turnover (Indounas, K, 2016, July).

If Johnson and Johnson's company was to use this method, then they could have introduced a new brand of high-quality product in the line with the baby products, however, this may lead to a great loss to the company, and may lead to difficulty of running its future operations. This is because a large number of sales of the product may not necessarily lead to increased price as long as the prices have to remain low.

Price Skimming

This method of pricing is almost the opposite case of market penetrating pricing. The company decides to give their new product with the highest price which will eventually decrease over time, but the initial set price becomes the maximum possible beyond which it cannot exceed. The price change over time is gradually done until all the customer levels are reached. The main advantage of this form of pricing is that it may encourage the entry of new competitors because other existing firms will shy off due to the high margins set by the product (Indounas, K, 2016, July).

Bundle Pricing

Bundle pricing strategy is also a common method of strategy that various firms normally use in order to ensure that they attract most customers and increase their sales. It is also a proper method to use for Johnson a Johnson company, it involves selling a package of products at a given lower price different from their real price if they were sold independently. It increases profit to the e-business by allowing customers some discount. A majority would be easily persuaded by this fact since they will see it as an offer when the company will be intending to make profit knowingly.

Appropriateness of Various Strategies

In the market, business competition is a normal situation, similarly, Johnson and Johnson company may nor enjoy all the benefits in the market due to the existence of some business firms operating un the same line of production. But the type of pricing strategy employed in the companies may differ in one way or another depending on the needs of the business and the advisors of each business company.

For example, in Johnson and Johnson company operating with more than one pricing strategies, this is the best if at all they can be incorporated , because when set of strategies working in the best condition is selected then, it would be a double advantage in both sides of implementation and this can lead to generation of large of income from the firm's investments. The company is applying the use of product line pricing and bundle pricing, competing with another local company where a different method like market penetrating pricing.

Suppose a financial report was to be done randomly on the two companies after a one-month operation of the and implementation of the different forms of strategies, the competitor dealing in a similar baby product would have run at a loss or made a very small margin of profit, this is because, the main aim of this strategy us to increase the awareness of the product existence in the market (Nagle, T. T., & Muller, G, 2017).

The strategy would, therefore, require some little more time for it to get fully implemented and begin making profits to the company. These would be a different case in Johnson and Johnson company because both product line and bundle pricing are economical and will result to a large amount of profit in the company over a short period of time (Sekaran, U., & Bougie, R, 2016).

Changes in Price by Competitors

Sudden changes in prices of products may adversely affect the operations of a business, it leads to a sudden change of plan and another proper plan should be established to help in counteracting the effect caused the competitors, for instance, if a competitor decides to lower the prices of the baby products in his firm, the majority of the customers will change their mind following the law of demand. In revisiting my plans, it is advisable to take on the demand curves earlier scheduled and note take note on how the targeted customers respond to variations in prices of commodities (Lach, S., & MoragaGonzalez, J. L, 2017).

Conclusion

In conclusion, it is important that Johnson and Johnson's company adapt to the growing changes in the market to ensure that their profitability does not reduce drastically (Siano, P., & Sarno, D, 2016). This can be ensured by having a group of well-experienced market researchers who can appropriately detect the smallest changes in the market and have relevant decisions for the company. Examples of the minute changes that might not be easy to detect are the type of marketing strategy know as price skimming, high involves a gradual change in the prices of the product to increase the number of the potential buyers in the market.

References

Hague, D. (2018). Pricing in business. Routledge. Retrieved from https://www.taylorfrancis.com/books/9781351249690

Schertler, A. (2016). Pricing effects when competitors arrive: The case of discount certificates in Germany. Journal of Banking & Finance, 68, 84-99. Retrieved from https://www.sciencedirect.com/science/article/pii/S0378426616300115

Nagle, T. T., & Muller, G. (2017). The strategy and tactics of pricing: A guide to growing more profitably. Routledge. Retrieved from https://content.taylorfrancis.com/books/download?dac=C2016-0-21718-7&isbn=9781315185309&format=googlePreviewPdf

Tone, A. (2018). The business of benevolence: Industrial paternalism in progressive America. Cornell University Press.

Lach, S., & MoragaGonzalez, J. L. (2017). Asymmetric price effects of competition. The Journal of Industrial Economics, 65(4), 767-803. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1111/joie.12158

Nagle, T. T., & Muller, G. (2017). The strategy and tactics of pricing: A guide to growing more profitably. Routledge. Retrieved from https://content.taylorfrancis.com/books/download?dac=C2016-0-21718-7&isbn=9781315185309&format=googlePreviewPdf

Indounas, K. (2016, July). Pricing new business-to-business products in a recession period. In 2016 Global Marketing Conference at Hong Kong (pp. 1353-1358).

Murphy, M. C., & Dweck, C. S. (2016). Mindsets shape consumer behavior. Journal of Consumer Psychology, 26(1), 127-136.

Siano, P., & Sarno, D. (2016). Assessing the benefits of residential demand response in a real-...