Pricing Strategy and Firms Profitability

Abstract

This paper summarizes the arguments and counterarguments within the scientific discussion on the issue price decision and its significantly impact on the firm profitability and market competitive position, pricing strategy considered to be fundamental tool for market growth, in today’s extremely competitive market, adopting a pricing plan is essential. In response to the demands of the industry, several pricing models have been developed under the influence of multiples factors (organization and management attitude, product cost structure, industry, and gap between local and target markets). The purpose of this paper is to review the price objectives and price methods that were adopted to set prices as well as their impact on the profitability of the firms. One of the most crucial managerial choices is the definition of the price policy since it has an impact on business profitability and market competitiveness. Despite the essential role that costs play in businesses. The objectives of this research were to develop and evaluate a theoretical model that would illustrate how pricing strategy affects business profitability. This study used the theoretical literature review technique to answer the following question: how product pricing methods impact on firm profitability? though we found that the pricing objectives are a function of pricing formula and methods. More important we found that firms are positively influenced by the value-based pricing strategy and high price, in contras its negatively influenced by the low price, this implies that prices policies affected the profitability of the company hence, this explained the importance of strategic consideration of the pricing, strategies, methods and process must be critically evaluated by management. The research results can be useful as baseline to further develop model that enable firms to quantify the impact of pricing strategies