Entrants in any market need to have a strategic plan on how to penetrate the system and gather a significant share of the clients. The market is competitive which means that every player in the system should have strategies to counter the competition and become the frontrunner in the industry. The pricing policy of a firm determines the sales the venture makes. Profitability in business ventures is enhanced through the incorporation of sales maximizing strategies such as aggressive pricing. In this article, aggressive pricing is analyzed with its benefits evaluated. The case study in this paper is a company that is producing operating systems for PCs. (W. L. Hill, R. Jones and A. Schilling, 2013).
Operating systems for computers prove technical and costly to design and implement. The costs involved are recovered from the sales made; hence, maximizing the sales volume is the primary agenda for any producer. Since producers and consumers saturate the market, there is a perfect flow of information which enables the customers to have knowledge of the prices of the commodities being sold which in this case is the operating system. By setting the price lower than the other competitors, new customers are attracted which increases the sales volume (Mohan and rasad, 2012). The argument here is that the profit margin for each product sold is small, but the number of software sales is high which depicts significant profit margin (W. L. Hill, R. Jones and A. Schilling, 2013).
When the operating system the organization is producing is set at a price low enough, the product diffuses into the market quickly which increases the profitability of the venture. Through aggressive pricing, the total cost of developing the operating system is lowered because there are economies of scale (Grimsley, 2016). When the market for the product broadens due to reduced prices, the firm increases the production level. Producing more operating systems to satisfy the market demand reduces the total cost incurred for the production since more products are produced with a lower cost of development.
Reference list
Mohan, M. and rasad, C. (2012). Pricing Strategies – In Retail Sector. IJSR, 1(7), pp.127-128.
Grimsley, S. (2016). Market Penetration: Examples, Definition, Advantages & Disadvantages - Video & Lesson Transcript | Study.com. [Online] Study.com [Accessed 29 Apr. 2016].
W. L. Hill, C., R. Jones, G. and A. Schilling, M. (2013). Strategic Management theory. 11th ed. Stamford: Cengage Learning. ISBN-13: 978-1-285-18449-4.
