A pricing policy is a company's approach to determining the price at which it offers a good or service to the market. Pricing policies help companies make sure they remain profitable and give them the flexibility to price separate products differently.
One of the most important decisions a company makes when introducing a product is setting its price. Companies rely on different pricing policies to meet their business needs while giving consumers good value. If you're interested in learning how to select a reasonable yet profitable price point for your business's goods or services, you might benefit from learning about what influences pricing policy selection.
Considerations for pricing policies
Types of pricing policies Cost-based pricing policy A cost-based pricing policy calculates the average cost of production for a good or service and then accounts for the profit margin your company desires. This policy is a traditional approach to doing business because it considers the costs of doing business in a straightforward and adjustable manner. If a material you require for production goes up in price, you simply raise the price of the good proportionally. One downside of this policy is that it can be difficult to know what you need to charge ahead of time or if the scale of production changes.
Value-based pricing policy Some companies have to respond to what consumers are willing to pay for a product. To determine what this price is, your company would conduct market research on market expectations, consumer preferences and competitors' offerings. Value-based pricing tries to understand the select factors distinguishing your specific good.
Demand-based pricing policy Consumer demand has different properties depending on the product. Demand-based pricing policies maximize profit by responding to the various consumer behaviors found in markets.
Competition-based pricing policy Your business might use a competition-based pricing policy to respond to what competitors are charging for similar products. When pricing based on competition, your company considers what segment of the market it wants to appeal to and the competitors from which it seeks to take market share.
Competition-based pricing policy can be useful because it's a simple way to determine price.
How to create a pricing policy