Pricing

Companies handle pricing in a variety of ways. In large organizations, teams of product managers make pricing decisions. In small businesses, top management usually makes pricing decisions rather than marketing professionals.

In industries where pricing is a vital factor (petroleum companies, transportation companies, commodity companies), companies will institute a pricing department within the company. They determine appropriate prices and report to upper management. Small businesses do not have the luxury of relying upon a pricing or marketing department. Therefore, they must ask themselves the right questions and use the right resources to develop effective pricing models.

Small businesses should ask themselves three initial questions:

? How should a price be set on a product or service for the first time?

? In light of the changing environment, how should pricing adapt over time?

? How should the company respond to a competitor's changing price?

Pricing can be defined by the process of determining how much to charge consumers in relation to what they will spend for the quality and value involved.

The pricing of a good or service depends on several internal factors - costs and marketing strategy - and external factors like competition, demand, government regulations, and consumer's value judgements about the product.

Many small businesses use penetration pricing to develop an initial market. This means they set a low price for a new product to build initial demand and capture market share. If the extra sales volume will be large enough to balance the lower margin, this may be a successful strategy.

Some high-tech start-ups set a high initial price to sell their product first to those willing to pay top dollar. This strategy is called skimming. This method of pricing requires a first-to-market strategy so as to grab the majority of the new market. The business must then nurture the market with lower prices after they both have matured.

A small business must follow a set procedure for setting a pricing policy. The business must first state its objectives and goals in relation to the product. The next step requires a determination of demand. The third step requires a cost analysis of external and internal factors. Determining the competition's pricing and cost models is forth. The fifth step is to choose a pricing model with which it is comfortable. And finally, a target price is to be set.
 
 
 
 
 
 
 

The Five Best World Wide Web Sites for Pricing and Product Valuation

http://optionalknowledge.com/index.htm
Optional Knowledge
Optional Knowledge provides high-end derivative analytic products and services. With the leadership of world-renowned Dr. David Heath and Dr. Robert Jarrow, Optional Knowledge specializes in yield-curve modeling, structured products and other customized derivatives. Our products enable structured product sellers and buyers, as well as risk managers, to quickly create and analyze these complicated instruments.
 
 

http://www.biz-lib.com/ZIFB37.html
Derivatives Maths
Derivatives Maths provides an integrated approach to the valuation of financial derivative instruments over a wide range of asset classes. It is a user's guide, aimed at market practitioners, market observers and students who have a general understanding of derivative instruments and wish to obtain a more complete understanding of the valuation characteristics of derivatives.
 
 

http://www.market-line.com/mla1.htm
Market Line Associates
Founded in 1986, Market Line Associates' (MLA) primary lines of business include:
? Account and customer profitability development, processing, software installation, and analyses
? Marketing analyses including applications of the profitability results to improve the bottom-line,
? Strategic planning including segmentation and targeting
? Product re-alignment, and delivery system optimization
? Customized projects
 
 

http://www.appliedmetrix.com/HomePage.html
Applied Metrix
Applied Metrix helps companies increase competitive advantage and margins through the optimization of marketing and sales productivity. Their focus is lower cost customer acquisition and maximization of lifetime value. Through the process of data mining they create value based customer segmentation and predictive models. This, in combination with demand generation data, constitutes the 'knowledge', which their proprietary ROIBuilder.com system delivers. They create, deploy and manage this unique Internet enabled system.
 

http://store.wolfram.com/view/X0658/
Mathematica
Mathematica Merchandise: Mathematica and the Future of Derivatives Pricing
This presentation will survey the role of Mathematica in the pricing of complex financial instruments. Derivative securities normally require the calculation of a function of several variables together with a large set of partial derivatives. This places considerable strain on both traditional programming languages and the algorithmics required. The talk will show how Mathematica streamlines all stages of the modeling process from the elementary computation of partial derivatives through to the exposure of subtle flaws in well-known numerical algorithms. The use of advanced special-function techniques and the exploitation of the compiler will also be demonstrated, as will the use of the kernel in conjunction with Excel.