P R I C I N G

      In  the  market  economy  the  business  success  of  any  company  or
entrepreneur mostly depends on the correctly chosen strategy and tactics  of
pricing on goods  and  services.  Pricing  is  a  rather  difficult  process
because prices mostly depend on the situation in the market.  The  range  of
political, economic, psychological and social factors has a great  influence
on the price level. Today your price can be determined by the costs  factor,
and tomorrow its level will depend on the customer’s behavior.
      However, nowadays the most part of entrepreneurs of our country has no
necessary theoretical and practical knowledge of the  complicated  mechanism
of goods and services pricing. As a result, establishing prices  they  often
make serious mistakes that immediately reflects on  the  financial  results,
in  some  cases  leads  to  suffering  losses  and  sometimes  even  to  the
bankruptcy of a business (company).
      To avoid this  situation  any  economist  and  any  entrepreneur  must
acquire the theory and practice of pricing.
                All commercial and nonprofit organizations face the  problem
of determining prices for their goods and services. In  the  market  economy
pricing is a very  difficult  process  which  is  influenced  by  plenty  of
different factors and based not only on the marketing  recommendations.  But
nevertheless, the right choice of price strategy, approaches to the  pricing
for new and still manufactured goods  and  services  in  order  to  increase
volumes of realization and commodity circulation, to enlarge production  and
firm the  company’s  positions  in  the  market  is  one  of  the  marketing
      Prices and the price policy are ones of the major  components  of  the
marketing activity, which importance is  permanently  rising  in  our  days.
Prices are in close dependence on  other  variables  of  the  marketing  and
other firm’s activities. Final commercial results mostly depends  on  prices
and it’s important to mention that in the long run correct  or  fault  price
policy brings positive or negative results of firm’s activity.
      The essence of the correctly chosen price policy in the  marketing  is
to fix and vary prices in dependence on a situation in the market  in  order
to win a certain market share, provide the planed profits  and  solve  other
strategic and operative tasks. Working out  the  general  price  policy  all
decisions are gathered into an integrated system.
      Stating a single price for all buyers is a comparatively new idea.  It
has been formed historically – a price was a result of the  deal  between  a
buyer and a seller. Usually sellers asked  for  a  price  higher  than  they
counted to get first. In their turn buyers asked  for  a  price  lower  than
they were ready to pay. While dealing with each other they usually  came  to
the price that was mutually  acceptable  to  everyone.  Common  prices  were
widely admitted only to the end of 19 century with the appearance  of  large
retail enterprises, which proclaimed “the strict policy  of  common  prices”
as they offered a huge variety of goods  and  employed  a  great  number  of
      Historically  prices  were  the  basic  factors  that   determined   a
customer’s choice. This is still true for the  third-world  countries  among
the  population  groups  living   below   the   normal   living   standards.
Nevertheless, for the last  tens  of  years  price  factors  such  as  sales
stimulation, distribution of goods  and  services  for  the  customers  have
obtained a certain influence on the consumer’s choice.
      The way firms approach the pricing problems may vary. In  small  firms
prices are usually determined by the higher leadership. In  large  companies
department supervisors and assortment  supervisors  deal  with  the  pricing
problems. But still at this  level  the  higher  leadership  determines  the
general targets of the price policy. The  higher  leadership  also  confirms
prices offered by managers of the lower  supervision.  In  space,  railways,
gas  and  oil  industries   companies   often   organize   special   pricing
departments,  which  determine  prices  or  help  the  others  do  it.  Such
employees as sales  department  managers,  production  supervisors,  finance
managers and accountants are those who also influence the price policy.
      First of all a firm must determine what purposes it intends  to  reach
with the help of the concrete goods. If the choice of  a  target  sector  of
the market is well considered the approach to forming the marketing  complex
including pricing  problems  is  quite  evident.  The  pricing  strategy  is
generally determined by  decisions  that  were  made  concerning  a  certain
position in the market. At the same time a firm  can  chase  other  targets.
The clearer a firm’s idea of its target the easier  to  determine  a  price.
There are plenty of examples in practice: providing survival  of  the  firm,
maximizing  current  profits,  winning  leading  positions  in  the   market
reaching the high quality of commodities.
      Providing company’s survival becomes the  general  purpose  under  the
circumstances of hard competition and when there are too many  producers  in
the market. It’s also true in case of rapid change of the customers’  needs.
To provide the work of enterprises and sales of their goods  firms  have  to
state lower prices in hope to get a favorable customer’s respond in  return.
Survival is more important than profits. While the prices reduced cover  the
production costs firms that get into  a  difficult  situation  can  continue
their commercial activity for some time.
      Plenty of the firms aspire to maximize  their  current  profits.  They
estimate customers’ demand and costs taking into  account  different  levels
of prices and then they chose the price that will provide  the  maximization
of future profits and cash and also provide maximum of  costs  compensation.
In all these cases current finance indicators (indexes) are  more  important
for a firm than the long-run ones.
      Other firms want to be leaders in the market share indicators in  hope
that a company getting the biggest market share will have the  lowest  level
of costs and the highest profits in  the  long  run.  Trying  to  reach  the
leadership in the market share they undertake the maximum possible  decrease
in prices. A variant  of  this  purpose  is  to  rapidly  get  the  concrete
increase of the market share.
      A firm can also make its goods the most qualitative among all the rest
offered in the market. Usually it demands to determine  a  higher  price  to
cover the costs for reaching high quality and conducting expensive surveys.
      To determine a price taking into account the level of current prices a
firm usually leans on its competitors’ prices and  pays  less  attention  to
its own indexes of costs and demand. Under the  circumstances  of  oligopoly
activity all the firms usually ask for the same  price.  The  smaller  firms
“follow the leader” changing their prices when  the  leader  changers  them,
not concerning the fluctuations of the demand for their  goods.  Some  firms
can take off a small extra charge as a premium or  grant  a  small  discount
keeping the difference in the permanent price. Such  method  of  pricing  is
quite popular.
      The  seller  must  take  into  account  not  only  economic  but  also
psychological factors of the price. Many consumers suppose  that  the  price
must reflect the quality of merchandises. Some firms manage to increase  the
sales by raising prices for their goods and such goods  will  be  considered
more prestigious. Such method of pricing based  on  the  goods  prestige  is
also quite  effective,  especially  concerning,  for  instance,  perfume  or
expensive cars that can cost ten times cheaper but customers pay  ten  times
higher considering that the price assumes something special.
      There exists one else,  unofficial  law  of  pricing,  which  is  very
popular practically among all the sellers. Price should be  expressed  in  a
odd figure. For example instead of $200 they put  $199.  And  then  for  the
plenty of consumers this merchandise will cost $100 and plus  but  not  just
      The chosen price  must  be  checked  whether  it  corresponds  to  the
existing price  policy.  Many  firms  work  out  purposes  concerning  their
favorable price image granting discounts and  taking  relative  measures  in
respond to the price activity of their competitors.
      In recent several years plenty of  the  firms  have  to  higher  their
prices. Doing so they understand that increase of prices will result in  the
displeasure of  their  customers,  distributors  and  own  sales  personnel.
Nevertheless, the successful increase of  prices  can  considerably  enlarge
the volumes of profits.
      One of the main condition affecting the  increase  in  prices  is  the
constant worldwide  inflation  caused  by  highering  level  of  costs.  The
increase of costs not corresponding to the production growth  leads  to  the
decrease of the profits rate and makes the firms permanently higher  prices.
Some  times  the  prices  growth  crosses  the  growth  of  costs   in   the
presentiment of further inflation or introduction of the state control  over
prices. Firms are not sure to give their customers any long-run  liabilities
concerning prices, scaring that the inflation caused by  costs  growth  will
damage their profit rate. Overcoming  inflation  firms  can  increase  their
prices in several ways.
      Another circumstance leading to the price increase is the availability
of extra demand (it’s especially typical for our country). When  a  firm  is
not able to completely satisfy their  customers’  needs  it  can  raise  its
prices. Prices can be  raised  practically  imperceptibly,  for  example  by
abolishing  all  the  discounts  and  enriching  the  assortment  with  more
expensive variants of goods.
      So there are lots of problems in the existing  pricing  system.  There
are plenty of questions to be solved. That is why in the modern economy  the
problems of pricing are the matter of special concern.
      The choice of the proper pricing policy is still  the  most  difficult
and important problem as in conditions of the  country  with  high  economic
level as, to  the  great  extend,  in  conditions  of  market  reforms.  Any
enterprise financing stability completely depends on  solving  this  problem
as well as the output and profit  rate  and  ability  of  investing  at  the
expense of own resources.
      The proper pricing policy is extremely important for national  economy
in general because the rational price structure and level contribute to  the
economic stability.
      In the market economy all attention is for the first turn paid to  the
consumer that should be the main principal of pricing policy  which  in  its
turn should be considered as a part of the overall planning of the  business
activity process.
      The constant appearance of new goods and services in the market is one
of  the  main  conditions  to  survive  under  the  circumstances  of   hard
competition. Otherwise,  the  leg-behind  firms  face  the  serious  finance
      The modern market grants new challenges in determining prices and some
innovations concerning this problem. One of the aspects here is  orientation
to the concrete  customer  concerning  establishing  so  called  “just  that
price” or “faire price”. There is no doubt that such understanding of  price
is common for customer  psychology.  Some  people  consider  prices  as  the
ability to obtain consumer’s benefits, other think that the  price  is  very
high. Sometimes such personal approach is called “moral pricing”.

      The right choice of the proper pricing strategy is  the  initial  task
for any company otherwise it can face  the  problems  of  finance  loss  and
      So we can repeat once again that there are lots  of  problems  in  the
existing pricing system. There exist plenty of questions  to  be  considered
and solved. That is why in the modern economy the problems  of  pricing  are
the matter of special  concern.  Pricing  issues  should  be  considered  in
complex taking account of special conditions of the modern market.