PRICING INDUSTRIAL PRODUCTS
PRICING INDUSTRIAL PRODUCTS
The pricing methods employed in the consumer field are generally not appropriate in the ONLINE MARKETING of industrial products. Whereas the ONLINE MARKETING Manager responsible for consumer goods may induce demand by means of large-scale advertising and promotional schemes, such as premium offers, it will be obvious that the buyers of raw materials, components or capital equipment do not respond to appeals of this nature.
Both the consumer products manufacturer and the producer of industrial goods have one thing in common: a preference to sell on factors other than price. Whereas consumer ONLINE MARKETING seeks to exploit the distinctive features of a brand image and a unique selling proposition as an alternative to price competition, in the industrial sphere the emphasis is generally placed on the attainment of technical distinction. In all the multifarious markets for industrial products there is a continuous demand for technological innovation and improvement. Thus a product which offers better value to the user can usually command a better price.
Cost Plus Pricing
In the industrial sector, the use of cost-plus pricing has been traditional. It establishes a price which is sufficient to cover the costs of production, distribution overheads and a margin of profit. It must also take account of what the user expects to pay. One must remember that price is only one of many factors which influence the decision to purchase industrial products. Of equal importance are such aspects as the ease of processing of a material, its delivery time, or, in the case of equipment, the frequency and amount of servicing which is necessary.
It will be seen that the worth of a product to the user is the decisive factor. Certain products will be worth more to the user than others because their combination of desirable properties will have a greater value. Equally, some products will have greater worth for some users rather than others. The needs of industrial customers vary widely and it is part of the essential expertise of successful industrial ONLINE MARKETING to investigate and define these needs and, by meeting them, to effect a sale.
Where a manufacturer can succeed in developing a product, which is sufficiently different from that of competitive products within the same category, he can establish a monopoly position and thus free himself from price competition entirely. He is out on his own, able to fix a price solely on the basis of what the market will bear.
One of the major problems which faces the producer of industrial goods is that his product range is often a complex fl one. So diverse are the needs of his market that he may well have to offer a multitude of different qualities of materials or sizes of components. Furthermore, it is generally the practice of industrial buyers to expect quantity discounts. All of this tends to make the pricing of industrial products a complicated affair, very different from the comparatively straightforward price structuring of the consumer field. For a firm manufacturing a large number of engineering components, many of which may be made especially to customers' specifications, the task of formulating and implementing a consistent pricing policy is indeed formidable.
The normal procedure followed in firms which use the cost-based system of pricing is for the estimating department to establish the anticipated cost of materials, tooling and labour. In a large organization reference can often be made to standard costs but generally this offers little more than a guide to the actual cost of the production of special items. Smaller firms, lacking the resources to carry out time and motion studies, seldom have a system of standard costing upon which they can rely. Many companies, therefore, use historical costs as a guide to their current costing, making allowances for known variations in the price of materials and labour. For short-run work this method will often prove satisfactory, but on longer runs the effect of volume upon historical costs is often difficult to ascertain.
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