Main Factors Affecting Product Pricing in the UK - Essay Example

 Main Factors Affecting Product Pricing in the UK Introduction Pricing is affected by two broad factors, internal factors which include cost, the purpose of marketing, factors surrounding the organization (internal) and external factors which comprises how the market one is in operates, the need for the commodity and other surrounding factors like competition, stakeholders-government, regulations, taxation among others. Like any other competitive market, product pricing in the UK is determined by factors of demand and supply, cost of production and value of the product to the customer, competition, among others. However, there are some specific factors that are unique for product pricing in the UK market industry. These factors are sometimes specific to products whereas at times they run across all or many products. (DBIS, 2011) Factors determining product pricing in UK One interesting factor that determines product pricing in the UK is gender. It might not affect all products but it does affect some products. According to the Association of British Insurers (ABI) research on “use of gender in in insurance pricing”, gender plays a significant role in determining pricing of insurance products. The researchers also report that there was however no patterned discrimination against either gender in this pricing. However, use of gender to determine the price of insurance commodities is conspicuous. For instance, ABI reports that young female drivers parted with less for insurance cover as compared to their male counterparts. This is attributed to the lower chance of the female drivers having accidents in relation to male drivers. In another example, women gain more in matters of life insurance due to lower premiums because they have a longer life expectancy. Men on the other hand, benefit from lower medical premiums between age thirty five and fifty five. This is due to the medical risks involved between the ages .i.e. women have higher medical risks. (ABI, 2010, pp. 4-10). Product differentiation is another determinant of product pricing in the UK. Product differentiation is bettering a commodity by making it different and of unique qualities as well as adding newness to the market. Product differentiation could bring with it advantages that include product variety which would result in lowered prices for consumers. Many differentiated products therefore are advantageous to the consumer. (Randall, 2009, pp. 17-19). Similar products by different companies lead to substitution by customers in case of price changes. Highly differentiated products on the other hand have lower price competition regardless of the number of companies that are competing. Examples of such products include cigarettes, beauty products and service industries like hotels among others. In such products, there is a monopoly in terms of pricing for the marketers since customers do not seem to look at pricing. British American Tobacco has not had a significant change in their number of customers despite increase in its products’ prices. Therefore the less differentiated a product is, the higher the chance of its customers shifting to other competing products as a result of changes in pricing. (Wiley, 2005, pp. 2-5) Holcombe’s concept of an advantageous product differentiation has been employed in the UK by several departments, among them, the UK Department for International Development (DFID). The department conducted a research to establish how an introduction of this strategy could make medicine more accessible to patients. (Yadav, 2010, pp. 5-10). Government interventions and strategies for instance, increase in interest rates, also tend to affect product pricing especially on financial assets like shares. The Bank of England is charged with the responsibility to regulate these rates and therefore the bank’s decision on the rates affects the prices of these assets. Increase in interest rates on these assets leads to increase in prices of the related commodities. (Bank of England , 2011). Taxation of products is also another factor that determines the price of products in the UK. Increase in taxation has more often than not led to increase in prices of commodities. An example is the increase in excise duty and value added tax (VAT) of alcohol in the past yearly reviews of the Chancellor of the Exchequer during budget reading. The prices of this commodity together with other commodities that experience these increases go up too. (IAS, 2010, pp. 1-10). In some incidences, the government may regulate the prices of commodities by imposing the lowest or highest price of some commodities. This is done to ensure quality of products is maintained (minimum prices) or for consumer protection, although much of this is not practiced by fact since the UK market is a free economy. Its practice could lead to exit of marketers and could also result in unseen charges in order to avoid the price ceilings set. These regulations however are admissible in the legal frameworks of the UK. The UK marketers attach a lot of importance on value of a product to determine its price. They place weight on how important a product is to the buyer. Therefore, the government as a result, even plans to introduce value-based prices for drugs in the health sector. Drug prices will therefore be determined by how much value they provide. This is aimed at enhancing access to better medicine by patients. The idea is to link the cost of a drug to its clinical effectiveness. (InPharm, 2010) Bargaining power of buyers in addition, plays an important role in product price determination. The higher the bargaining power of a buyer or buyers, the lower the price of the commodities concerned. This however happens in exceptional incidences where the buyer has a higher bargaining power than the marketer. For instance, Asda Wal-Mart, a UK supermarket, managed to lower the buying price of bananas supplied to it in 2002. The practice was emulated by other retailers who asked for price cuts from their suppliers. After two years, the price of bananas had dropped. (AI, 2005, pp. 2-6). Conclusion Product pricing in the UK is affected by various factors as cited above. Some are product-specific whereas others run across a number of products. In essence, other than the normal factors of demand and supply, pricing of commodities in the UK is dependent on gender, product differentiation, generic production and importation, government interventions including taxation and bargaining power. List of References ABI. (2010). The Use of Gender in Insurance Pricing. Retrieved October 25, 2011, from Association of British Insures: http://www.abi.org.uk/Publications/51810.pdf AI. (2005). Power Hungry. Retrieved October 25, 2011, from Actionaid International: http://www.actionaid.org.uk/_content/documents/power_hungry.pdf Bank of England . (2011). Monetary Policy: How monetary Policy Works. Retrieved October 2011, from Bank of England: http://www.bankofengland.co.uk/monetarypolicy DBIS. (2011). Business Link. Retrieved October 25, 2011, from Price your Product or Service: http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073899859 IAS. (2010). Alcohol: Tax, Price and Public Health. Retrieved October 25, 2011, from IAS Fact Sheet: http://www.ias.org.uk/resources/factsheet/tax.pdf InPharm. (2010, July 13, 09:35am). Value-based Pricing for UK pharma by 2014. Retrieved October 25, 2011, from InPharm: http://inpharm.com/news/value-based-pricing-uk-pharma-2014 Randall, H. G. (2009). Product Differenciation and Economics. THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS, 12(1):17-19. Wiley, J. (2005). Industry Analysis: The Fundamentals. Retrieved October 25, 2011, from www.blackwellpublishing.com/grant/pdf/CSAeCO3.pdf Yadav, P. (2010, August). Differntial Pricing for Pharmaceuticals. Retrieved October 25, 2011, from UK Department for International Development: http://www.dfid.gov.uk/Documents/Publications/51810.pdf Read More