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(see Fig. 2.4)

To make investment decisions, information is needed about supply and demand, production costs, availability of resources, etc. The effect of the decision will manifest itself only after a certain time, so investing in a particular project requires a cost assessment taking into account the risk factor. We also need information about tax prospects, expected inflation rates...

All this information is not acquired or produced for free. The economic effect of using information must exceed the costs of acquiring it - this is the general criterion that determines the feasibility of obtaining any information. There is such a volume of information at which the benefits from its use are maximum. After passing the point of the optimal amount of information, the benefits from obtaining additional, now excessive information compared to the additional costs of acquiring it begin to fall - this is manifested in the law of diminishing marginal utility and marginal productivity of factors of production.

The most important is the following formulation of the law of diminishing marginal utility and marginal productivity of factors of production: An increase in variable costs leads to an increase in the volume of output, sales revenue and profit only up to a certain point, beyond which additional products and the economic effect obtained from a further increase in costs begin decline. This happens because more and more new “doses” of variable costs are combined with relatively decreasing values ​​of fixed costs, the rational combination between variable and fixed costs is violated, and the enterprise cannot further increase revenue and profit due to a lack of equipment, production and office space , management personnel, insufficient advertising, etc. To correct the situation, a jump in fixed costs is required.

Let us return, however, to the problems of obtaining information. To make investment and financial decisions, an enterprise first needs information about the demand for its product. You can verify the effectiveness of this information by comparing various options for estimated additional revenue from increasing production and sales with additional marketing costs - studying the market and promoting the product on it. The most important tools of marketing research are product demand and supply curves.

The optimal option is equality of supply and demand. The equilibrium point between supply and demand corresponds to the equilibrium price. This price is called the equilibrium price (EP):

• - the equilibrium price rationalizes the buyer’s demand, conveying to him information about what volume of consumption of a given product he can count on;
• - the equilibrium price tells the manufacturer (seller) what quantity of goods should be produced and delivered to the market;
• - the equilibrium price carries all the information necessary for producers and consumers: a change in the equilibrium price is a signal for them to increase (decrease) production (consumption), an incentive to search for new technologies.

Thus, the equilibrium price quite successfully serves to automatically regulate production.

The upward shift of the demand curve is influenced by changes in consumer behavior in anticipation of rising prices - the factor of inflation expectations. Let us note other factors that influence the height of the demand curve: changes in the population, changes in tastes and preferences, political and natural shocks, etc.

What guides a particular buyer in his behavior? In answering this question, the theory of marginalism is based on the following basic principles:

• 1. The consumer strives to obtain the greatest, from his point of view, satisfaction with his limited income - maximum subjective utility.
• 2. The subjective utility that each subsequent purchased unit of a given product brings to the consumer is less than the subjective utility brought by each previous unit of the product. At the same time, the total, total utility increases more and more slowly. The increase in total subjective utility when consuming each new unit of a good is called marginal utility.

Utility is expressed and confirmed by the buyer through the purchase of a product at a given price. Indeed, by agreeing to pay for a product, the buyer recognizes it as subjectively useful for himself personally. Thus, the marginal utility curve usually coincides with the demand curve.

When we consume the first “portion” of any product, we usually receive maximum satisfaction. But as we consume more and more “portions” of the same product, our need for this product becomes saturated, and the psychological ability to assess its usefulness becomes dulled, that is, the overall (total) utility of consuming the product grows for you at an increasingly slower rate. pace.

The marginal utility curve coincides with the demand curve... when the utility of the monetary unit (!) is constant! In conditions of inflationary price growth, the usefulness of the monetary unit, unfortunately, decreases, so your curves will coincide and will be practically applicable only if you make all calculations in comparable prices - either in current or in prices of the base period. Otherwise, you will receive distorted information on the basis of which you cannot make decisions.

The requirement to use comparable prices applies to all financial management calculations.

Now let's see what the desires and behavior of the seller (manufacturer) depend on?

The manufacturer strives to maximize the profit received, i.e. the difference between revenue from sales of products and the costs of their production. This means that when deciding on production volume, the manufacturer must always choose the volume that provides the greatest profit. We thus come close to variant calculations of profit at different prices and production volumes. It is obvious that each subsequent unit of production produced will require an increase in costs. In other words, the production of an additional unit of output causes an increase in total revenue by a certain amount, which is called marginal revenue, and a simultaneous increase in total costs by an amount, which is called marginal cost.

If the production of an additional unit of output adds more to total revenue than is added by the production of this unit of output to total costs, that is, marginal revenue is greater than marginal cost, then the manufacturer's profit increases. Conversely, if marginal revenue is less than marginal cost, profit decreases. The greatest profit can be obtained in the case of equality or at least maximum convergence of marginal revenue with marginal costs. It is this equality that determines the equilibrium price and optimal production volume, ensuring maximum profit.

Let us further imagine a situation that is well known to everyone: the manufacturer raises the price. How sharply will the volume of demand change, and will it change at all? To answer this question it is necessary to use the elasticity apparatus.

Elasticity shows the degree to which one quantity responds to a change in another, for example, a change in the quantity demanded due to a change in price. This reaction can be strong or weak, and our demand and supply curves will change accordingly.

The first case is when the slightest increase in price causes a sharp drop in demand. The consumer is sensitive to price changes. The second case is during rush demand, as well as in the market for essential goods), even a significant increase in price causes only a slight decrease in demand.

It follows from this that in the first option, the price increase has a painful impact on the financial position of the manufacturing enterprise, since effective demand (and with it sales revenue) drops sharply; in the second option, on the contrary, the financial position of the enterprise improves, because demand practically does not change, and prices and revenues rise.

To decide whether or not a manufacturer should raise prices in each specific case, the elasticity mechanism is used:

• - when the elasticity of demand is greater than one (demand is elastic), a decrease in price causes such an increase in the quantity of demand that total revenue increases;
• - if the elasticity of demand is equal to one, the decrease in price is exactly compensated by the corresponding increase in sales, so that total revenue remains unchanged;
• - when the elasticity of demand is less (demand is inelastic), a decrease in price causes such a fall in demand that total revenue falls.

Thus, with demand elasticity less than one, the manufacturer can increase prices for its products and increase revenue. But if the elasticity turns out to be greater than one, it is better not to increase prices, because sales revenue will begin to decline. In this case, on the contrary, it makes more sense to lower prices in order to increase revenue due to increased demand. The types of buyer reactions to price changes are shown in Table 2.1.

Table 2.1 - Buyer behavior for various types of demand

Manufacturers should always remember that:

• - the more goods on the market that are, from the buyer’s point of view, substitutes for your product, the more elastic the demand. If, for example, you raise the price of a certain brand of radio equipment, a significant number of buyers may switch to cheaper substitutes;
• - the higher the share of expenses for a given product in the consumer’s budget, the higher the elasticity of demand. If only a small part of the consumer budget is spent on your product, then the buyer does not need to change his habits and preferences when the price changes. The same amount of spending on a purchase with a high income is a small share of the budget, and with a low income it is a significant one. Therefore, the elasticity of demand for the same good is less for low-income consumers than for low-income consumers;
• - the elasticity of demand is lowest for goods that, from the consumer’s point of view, are the most necessary. The elasticity of demand is especially low for goods whose consumption cannot be postponed. At the same time, the buyer becomes more accommodating.

For a manufacturer (seller) of a product, interest in the elasticity of demand is by no means idle, because any manufacturer can act both as a supplier and as a consumer of raw materials, semi-finished products, energy, various products, equipment, and services. How do the total costs of the consumer enterprise change when prices for all these goods change? What prospects for profit dynamics can we count on? First of all, determine the nature of your demand for raw materials, etc., and then refer to Table 2.2 and do not forget, please, about the share of certain of your costs in their total amount.

Table 2.2 - Changes in consumer costs when prices for raw materials, materials, energy, equipment, etc. change

If, in response to an increase in prices for energy, raw materials, supplies, etc., you can significantly reduce their purchases due, for example, to a change in technology, then your demand for these goods is elastic; if your consumption does not change, then demand is characterized by unit elasticity; If, with rising prices, the technology cannot be made material- and energy-saving, then an increase in costs is inevitable, which is what we observe under the conditions of a manufacturer’s monopoly. I would like to hope that the development of entrepreneurship, the diversity of business forms, and increased competition will force our producers to respond to rising prices for raw materials and materials by changing technologies.

The elasticity apparatus can also be applied to the analysis of the price consequences of tax changes. Most often, a change in taxes causes a change in demand.

When demand is elastic (that is, prices cannot be raised sharply for fear of a sharp drop in revenue), the producer bears the brunt of the tax increase.

If the tax is reduced, then in conditions of elastic demand it is more profitable for an entrepreneur to reduce the price, because this will cause an increase in demand and revenue will increase.

But if demand is inelastic, that is, an increase in price does not cause a sharp change in demand, there are three options for an entrepreneur’s behavior when reducing tax pressure:

• 1. Reduce prices. Demand will not rise sharply due to inelasticity; increasing sales revenue is very problematic. However, in our conditions, the very fact of a price reduction can become an excellent advertisement and sharply stimulate demand.
• 2. Leave prices the same. This is perhaps the most acceptable option, since a tax reduction is equivalent (for a given demand) to an increase in the share of sales proceeds going to the manufacturer.
• 3. Raise prices. If handled very carefully and well analyzed, this can provide the greatest increase in revenue as the price increases while tax is reduced. It’s just important not to go overboard with the price. Otherwise, as has already been shown, demand falls catastrophically, and the enterprise earns itself bad publicity.

When starting to develop its own pricing policy, an enterprise needs to take into account the type of market, its volume, structure and degree of saturation, determine the elasticity of demand, i.e. the rate of change in demand under the influence of various factors, such as price.

In pricing policy, it is necessary to implement two essentially opposite approaches. On the one hand, to give, if possible, significant freedom to the manufacturer, including in matters of pricing, in order to overcome shortages and stabilize the economy. On the other hand, limit the noticeably manifested tendency towards rapid price increases in order not to aggravate social and political conflicts, slow down inflation, protect consumers, and prevent the impoverishment of large sections of society.

In the world practice of pricing, in the absence of competition for any type of product, two options for setting prices are possible. In the case of a regulated monopoly, the government allows the company to set prices that provide a “fair rate of return” that allows the organization to maintain production and, if necessary, expand it. In the case of an unregulated monopoly, the firm itself is free to set any price that the market will bear.

Thus, an enterprise cannot have complete freedom in matters of pricing; its desire is adjusted by many factors, which, firstly, are formed under the influence of the general state of the economy (employment, real income, dynamics of investment industries, the state of the financial system) and require regulation by states; secondly, they are related to the components of the market (demand, supply, inflation, balance) and have a direct or indirect impact on the pricing policy of each individual enterprise.

The development of an enterprise's pricing policy begins with defining goals.

Next, you need to evaluate the capabilities of the consumer. It must be taken into account that markets for consumer goods and services are interconnected; since they rely on the income of the population and are formed within the framework of existing effective demand. An increase in demand in one sector of the consumer market can lead to a decrease in another. Rising prices in the national economy as a whole and a decline in real incomes have a negative impact on the purchasing power of the population. Inflation causes a change in the structure of effective demand and leads to a switch in demand for essential items. On the other hand, income differentiation, inevitable during the transition to a market, can increase the demand for more expensive and high-quality services.

Cost estimation is the next stage of pricing. Costs characterize the capabilities of an enterprise and its competitiveness.

The next step in the pricing process is choosing a pricing method. There are several basic pricing methods known to market practice.

Method average cost plus profit consists in charging a certain markup on the cost of goods. The size of the markups is set depending on the type of goods and varies widely. This method does not take into account the characteristics of current demand and competition, and therefore does not allow setting the optimal price of the product. The method is used when sellers know more about costs than about demand, and they do not have to frequently adjust prices depending on fluctuations in demand. Firms in an industry use this method when their prices are similar, so price competition is minimized. The method is fairer to buyers, since when demand is high, sellers do not profit at the expense of buyers.

Price calculation based on the break-even principle involves taking as a basis the costs of production and marketing of goods and adding the desired profit to them. This pricing method requires the firm to consider different price options to determine their impact on sales.

If, when setting a price, a higher desired profit is assumed, it is necessary to take into account a number of factors limiting its value, which lie on the side of consumers:

general dynamics of real incomes of the population of the region as a whole, as well as by social and age groups;

general dynamics of prices for consumer goods and services;

changes in the structure of consumer demand;

the likelihood of consumer demand switching in conditions of inflation to satisfy more pressing needs;

the degree of urgency of needs for certain types and their place in the range of consumer preferences.

In order to fit within the acceptable level of costs, it is necessary to constantly take into account changes in the contractual and free prices of the supplier for both material and equipment, and create a generally flexible adaptation mechanism that can quickly respond to constantly changing economic conditions.

Price setting method based on the buyer's perceived value of the product applies if the buyer is offered a product or service of special quality, or if there is an increased level of service. For example, individual tailoring according to the artist’s sketches; the order is completed in a shorter time.

Price setting based on current price levels quite popular and involves taking into account the prices of other producers of similar goods and services. Smaller firms, following the leader, change prices only when the leader changes them, and not depending on fluctuations in demand for their goods.

When setting prices for based on sealed bidding A firm's bid for a contract is based on its competitors' expected price quotes.

If the volume of services in physical terms falls as a result of rising prices, it is necessary to switch to a pricing methodology based on demand. Unlike prices focused on production costs, these prices are based on constant monitoring of the intensity of demand and flexible changes in the level of the set price. In a simplified form, this method looks like this: when demand increases, prices are set at a higher level, and when demand falls, prices are set at a lower level. In both cases, the marginal cost of production per unit of goods remains the same, and the rate of profit changes. Setting prices depending on the actual demand for a product leads to price discrimination, meaning that the same product is sold at two or more prices depending on buyer behavior, product variant, place or time of sale. Demand should be studied in several directions: its structure by nomenclature; dynamics by season and year; real, potential and future demand; elasticity of demand, i.e. the rate of its change under the influence of various factors. When setting the final price of a product, the company's management must take into account the reaction of other market participants: the state, competitors, suppliers.

The pursuit of current profits can push a company to unjustifiably sharp price increases, especially in the absence of competition. However, although too high a price contributes to the growth of current profits, it poses a certain danger in strategic terms. Firstly, it attracts additional capital and entrepreneurs to this area, and therefore creates or increases competition and ultimately leads to lower prices and profits. Secondly, it necessitates the introduction of administrative price regulation in order to protect the interests of the population (consumers). Thirdly, it scares away potential consumers and thereby narrows the scope of the enterprise’s economic activity and reduces the market, for example, dry cleaning services. Consumers cannot get more out of what they can give, so when prices rise, some consumers pay more, but others switch off altogether. The volume of services not only does not grow, but may even decline.

Thus, at a low price, making a profit is impossible. At a high price, it becomes impossible to generate demand.

In market conditions, an enterprise should be very careful with prices, special attention must be paid to creating demand for its goods and services, looking for its consumer, striving to increase the number of customers by expanding the range of its goods and services.

In general, it is necessary to develop a long-term policy of actively influencing prices and market demand, forming them in order to maximize profits and taking into account the interests of regular and additionally attracted consumers.

Control questions

Describe the main factors influencing the pricing process.

What place does price occupy in the marketing mix?

List the main objectives of pricing.

Expand the pricing method, which is based on the study of demand.

In what cases can an enterprise be guided by competitors' prices when setting prices?

How does the firm manage prices?

How is consumer attitude towards prices measured?

Exercises

For the most important terms, choose the correct definition:

Price policy.

Price elasticity.

Functional discounts.

Zone prices.

Setting prices based on current price levels.

a) Pricing that uses competitors' prices rather than its own costs as the basis for calculations.

b) Setting prices on a geographical basis.

c) A measure of the sensitivity of demand to price changes.

d) A discount offered by the manufacturer to distribution services performing certain functions in the distribution channel.

e) A set of strategies and activities to manage prices and pricing.

Test

1. Market penetration prices are:

a) higher prices in relation to the prices of competitors;

b) lower prices in relation to the prices of competitors;

c) identical goods are sold at different prices;

d) maintaining constant prices over a long period.

2. PriceEXW- This:

a) the seller sells the goods at the disposal of the buyer on his own territory;

b) the seller pays transport costs;

c) the seller pays insurance costs;

d) the seller pays transportation costs to the port of destination.

3. Tests are:

a) discounts from current prices;

b) discounts provided in distribution channels;

c) discounts for the quantity of goods purchased;

d) discounts on new goods subject to the return of old goods.

4. PriceF.A.S.characterized by the fact that:

a) the seller pays transportation costs until the goods are loaded;

b) the seller delivers the goods on his territory;

c) the seller pays all transportation costs;

d) Buyer pays all shipping costs.

5. Bonus discounts are provided:

a) for the quantity of goods purchased;

b) for payment in cash;

c) regular customers;

d) resellers.

Development of pricing policy (price formation) of the enterprise

When developing a pricing policy, the following issues are usually resolved:

• -in what cases is it necessary to use a pricing policy;
• - when it is necessary to react with the help of price to the market policy of competitors;
• - what pricing policy measures should accompany the introduction of a new product to the market;
• -for which products from the assortment sold need to change prices;
• -in which markets it is necessary to carry out an active pricing policy, change the pricing strategy;
• -what pricing measures can enhance sales efficiency;
• -how to take into account the existing internal and external restrictions on business activity and a number of others in the pricing policy. Journal "Marketing and Marketing Research", No. 5, 2012, p. 5.

The process of developing and implementing an enterprise's pricing policy can be represented schematically. At the initial stage of developing a pricing policy, an enterprise needs to decide exactly what economic goals it seeks to achieve by producing a specific product. Typically, there are three main goals of pricing policy: ensuring sales (survival), maximizing profits, and retaining the market.

Patterns of demand. Studying the patterns of demand formation for a manufactured product is an important stage in the development of an enterprise’s pricing policy. Demand patterns are analyzed using supply and demand curves, as well as price elasticity coefficients.

The less elastic the demand is, the higher the price the seller of the product can set. And vice versa, the more elastic the demand is, the more reason there is to use a policy of reducing prices for manufactured products, since this leads to an increase in sales volumes, and consequently, the income of the enterprise. Journal "Marketing and Marketing Research", No. 2, 2008, p. 23.

Prices calculated taking into account the price elasticity of demand can be considered as an upper bound on price.

Cost estimation. To implement a well-thought-out pricing policy, it is necessary to analyze the level and structure of costs, estimate the average costs per unit of production, compare them with the planned production volume and existing prices on the market.

Analysis of prices and products of competitors. The difference between the upper limit of the price determined by the solvent method and the lower limit formed by costs is sometimes called the entrepreneur's playing field for setting prices. It is in this interval that the specific price for a particular product produced by the enterprise is usually set.

The enterprise develops a pricing strategy based on the characteristics of the product, the possibility of changing prices and production conditions (costs), the market situation, and the relationship between supply and demand.

An enterprise can choose a passive pricing strategy, following the “price leader” or the bulk of producers in the market, or try to implement an active pricing strategy that primarily takes into account its own interests. The choice of pricing strategy, in addition, largely depends on whether the company is offering a new, modified or traditional product on the market.

When releasing a new product, an enterprise usually chooses one of the following pricing strategies.

• - “Skimming” strategy. Its essence lies in the fact that from the very beginning of the appearance of a new product on the market, the highest possible price is set for it for a consumer who is ready to buy the product at that price. Price reductions take place after the first wave of demand subsides. This allows you to expand the sales area and attract new buyers.
• - Market penetration (implementation) strategy. To attract the maximum number of buyers, the company sets a significantly lower price than market prices for similar products from competitors.
• - The strategy of following the leader in an industry or market involves setting the price of a product based on the price offered by the main competitor, usually the leading firm in the industry, the enterprise that dominates the market.
• -The neutral pricing strategy is based on the fact that the price for a new product is determined based on the actual costs of its production, including the average rate of profit in the market or industry according to the formula:

C = C + A + P (C + A)

where C is production costs; A -- administrative and sales costs; R is the average rate of profit in a market or industry. Erukhimovich I.L. Pricing: Educational method. allowance. - 2nd ed., stereotype. - K.: MAUP, 2008, p. 76.

The prestige pricing strategy is based on setting high prices for very high quality products with unique properties.

The choice of one of the listed strategies is carried out by the management of the enterprise depending on the target number of factors:

• * speed of introduction of a new product to the market;
• * share of the sales market controlled by this company;
• * the nature of the product being sold (degree of novelty, interchangeability with other products, etc.);
• * payback period of capital investments;
• * specific market conditions (degree of monopolization, price elasticity of demand, range of consumers);
• * position of the company in the relevant industry (financial situation, connections with other manufacturers, etc.). Magazine: "Marketing Communications", No. 5, 2010, p. 12.

Pricing strategies for goods sold on the market for a relatively long time can also focus on different types of prices.

The sliding price strategy assumes that the price is set almost directly depending on the relationship between supply and demand and gradually decreases as the market becomes saturated (especially the wholesale price, but the retail price can be relatively stable). This approach to setting prices is most often used for consumer goods. In this case, prices and production volumes of goods closely interact: the larger the production volume, the more opportunities the enterprise (firm) has to reduce production costs and, ultimately, prices. With this pricing strategy it is necessary:

• * prevent a competitor from entering the market;
• * constantly care about improving product quality;
• * reduce production costs.

Long-term prices are set for consumer goods. It operates, as a rule, for a long time and is weakly subject to change.

A flexible pricing strategy is based on prices that quickly respond to changes in supply and demand in the market.

Having an idea of ​​the patterns of formation of demand for a product, the general situation in the industry, prices and costs of competitors, and having determined its own pricing strategy, the enterprise can move on to choosing a specific pricing method for the product produced.

Let's consider the most commonly used pricing methods: “average costs plus profit”; ensuring break-even and target profit; setting prices based on the perceived value of the product; setting prices at current prices; "sealed envelope" method; pricing based on closed bidding. Each of these methods has its own characteristics, advantages and limitations that must be kept in mind when developing prices.

The simplest method is considered to be the “average costs plus profit” method, which consists of calculating a markup on the cost of goods. The amount of markup can be standard for each type of product or differentiated depending on the type of product, unit cost, sales volume, etc.

There are two methods for calculating markups: based on cost:

Another cost-based pricing method aims to achieve a target profit (break-even method).

This pricing method requires the firm to consider different pricing options, their impact on the volume of sales needed to break even and achieve target profits, and analyze the likelihood of achieving all of this at each possible price of the product.

Pricing based on the “perceived value” of a product is one of the most original pricing methods, with an increasing number of firms starting to base their price calculations on the perceived value of their products. In this method, cost targets fade into the background, giving way to customers’ perception of the product. To form an idea of ​​the value of a product in the minds of consumers, sellers use non-price influence methods, provide after-sales service, special guarantees to buyers, the right to use the trademark in case of resale, etc. The price in this case reinforces the perceived value of the product.

Setting prices at current prices. By setting a price taking into account the current price level, the company is mainly based on the prices of competitors and pays less attention to indicators of its own costs or demand. It can set a price above or below the price of its main competitors. This method is used as a price policy tool primarily in those markets where homogeneous goods are sold.

Pricing based on the sealed envelope method is used, in particular, in cases where several firms compete with each other for a contract for machinery and equipment. This most often happens when firms participate in tenders announced by the government. A tender is a price offered by a company, the determination of which is based primarily on the prices that competitors can set, and not on the level of its own costs or the amount of demand for the product. The goal is to win the contract, so the firm tries to set its price below that of its competitors.

Pricing based on sealed bidding is used when firms compete for contracts during bidding. At its core, this pricing method is almost no different from the method discussed above. However, the price set on the basis of closed bidding cannot be lower than cost. The goal here is to win the auction. The higher the price, the lower the likelihood of receiving an order. Having chosen the most suitable option from the methods listed above, the company can begin to calculate the final price. In this case, it is necessary to take into account the buyer’s psychological perception of the price of the company’s product. Practice shows that for many consumers the only information about the quality of a product is contained in the price, and in fact the price is an indicator of quality. There are many cases where, with rising prices, the volume of sales, and therefore production, increases.

V. MARKETING BASICS

12. Development of pricing policy

Pricing policy is seen as a decisive marketing tool. The price level is considered a reliable indicator of the functioning of competition. Price competition arises not only between commodity producers, but also between producers and trade. The manufacturer would like to control two prices: the wholesale price of the enterprise and the retail price, because its revenue depends on the first price, and the second affects the positioning of the product. However, the legislation of many states assigns the right to set retail prices to retail trade enterprises. This limits the manufacturer's capabilities, because he can only guess what price the trade will set at his wholesale price and the usual trade margin.

Price in a broad sense refers to all subjective and objective costs associated with the acquisition and use of a product.

Subjective costs include such intangible costs as loss of time, comfort, or the feeling of lost profits.

Objective costs are the actual price of the product and any additional alienation of cash or other material resources of the buyer of this product, i.e. this is the base price and the price of additional services (transport, discounts, repair costs, etc.).

The process by which an enterprise sets prices for its goods includes at least six stages:
1. Setting pricing objectives.
2. Determination of demand.
3. Estimation of production costs.
4. Conducting an analysis of prices and products of competitors.
5. Choosing a price setting method.
6. Determination of the final price and the rules for its future changes.

Characteristics of approaches and pricing methods are given in Table. 12.1.

Table 12.1

Characteristics of approaches and pricing methods

Approaches and methods	Brief description of approaches
1. Pricing based on cost 1.1. Cost plus profit method 1.2. Checkpoint Analysis Method	The manufacturer determines the price of the product based on its cost. The condition for applying the approach is the stability of the cost over time or its slight change. The main disadvantage is that the level of demand for the product is not taken into account when determining the price.
2. Pricing based on profit 2.1. Profit Maximization Method 2.1. Comparison of gross income with gross costs 2.1.2. Comparison of marginal revenue with marginal cost. 2.2. Target profit method. 2.3. Target profitability method 2.4. Target profitability method investments.	To achieve the desired level of profit, the balance of gross (marginal) income and gross (marginal) costs is calculated. The target profit can be determined either by directly calculating it or by maximizing it. Direct definition of target profit can be expressed by return on sales or return on investment
3. Setting prices based on assessment of demand. 3.1. Ratio Analysis Method elasticity.	The price of a product is determined based on the demand for the product. The price level for a product depends on changes in demand. A high price is set when demand is relatively high, and a low price when demand is low. In this approach, costs are considered only as a limiting factor that shows whether a product can be sold at a set price, providing a profit, or not.
4. Setting prices based on use value. 4.1. Method of direct price determination. 4.2. Method for determining use value. 4.3. Diagnostic method.	When setting prices, they are guided by an assessment of the purchasing use value of the product. Consumer ratings are usually expressed in points or percentages. Costs are considered as an auxiliary indicator taken into account when ensuring a positive economic result. The approach is used when introducing a new product to the market.
5. Pricing based on prices competitors. 5.1. Technical analysis method level of competitor products.	The approach is based on competitors' prices. Little attention is paid to own costs and demand. When setting prices first The quality of the goods is taken into account.
6. Setting prices based on a parametric series of products. 6.1. Method of specific indicators. 6.2. Method of structural analogy. 6.3. Correlation method regression analysis	The basis of the approach is the quantitative relationships between costs or prices and consumer properties of products included in the parametric series. A parametric series is a group of products that are homogeneous in design and manufacturing technology and have the same functional purpose.

When deciding on prices when setting pricing objectives, the determining factors are:
– costs of production and sales of products;
– the maximum price that the consumer is willing to pay;
– price level for competing goods, influence of competitors.

Based on this, three main pricing strategies can be distinguished:
– setting low prices (costs plus normal profit);
– strategy of exhaustion (“skimming off the cream”);
– strategy of adaptation to the market price (following the leader).

The company sets an initial price and then adjusts it based on environmental factors.

Within the framework of the pricing policy, the following pricing areas can be distinguished:
– setting prices for new goods;
– pricing within the product range;
– setting prices with discounts and offsets;
– setting prices to stimulate sales;
– establishment of discriminatory prices.