Pricing Model
TermiKnowledge - Supply Chain, Procurement and Inventory Terminologies
A micro economic pricing model refers to a flexible model of determining prices for specific goods and services within an economy or even a specific market. This pricing model puts great importance on the interdependence of demand and supply in the marketplace, it is through this equilibrium that prices are determined. The supply chain management in a micro economic model can be understood as a series of activities that move products from point A to point B along with the transport of finished goods from point B to point C. Some examples of micro economic pricing models include the following: The production model, where output is priced according to the cost of production, the fixed factor pricing and the time value pricing which uses present information and incorporates imperfections in pricing to come up with an accurate price; the real time pricing which is similar to the production but uses the assumption that prices will change instantaneously with the happening of events in the market. There are also model which attempt to combine all three of these pricing methods called the mixed economic model.
The reason why the business decide to use these pricing models when establishing their pricing is because they allow business owners to be flexible in how they determine the pricing of their products, thereby allowing them to offer more competitive prices than their competitors. These pricing models also provide businesses a way to effectively manage their operational costs and revenues because they allow business owners to take advantage of economies of scale and reduce operational costs. We recommend using these pricing strategies when establishing your profit and loss statements, it may seem complicated to determine margins of profit and loss due to the use of so many pricing models but once you get into the nitty gritty of it, everything should start to make sense. In addition, you will see that it can reduce the risk of costly market losses and can improve cash flow.
In conclusion, one of the most important things you must do before deciding on any business strategy is thoroughly research your competition, and by doing that, you can determine their pricing model, the strategy they use to determine prices and determine profitability. One of the best strategies we have found for determining profitability is the use of a pricing model, which allows us to not only determine the pricing for our products but we can also measure the profitability of our business. This information can help us build a solid business plan, one that will increase our company's profitability.
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