When managers make regular pricing decisions at GWC Valve Inc, they need to ask themselves three basic questions. They encourage other managers in small to medium sized businesses to do the same.
- What is our target profit?
- How much with customers pay for our services and products?
- Are we a price-taker or a price-setter?
GWC Valve Inc managers know that shareholders usually tie their profit expectations to the amount of assets invested int he company. Additionally, the amount customers will pay depends on the competition, the product’s uniqueness, the effectiveness of the marketing campaigns, and general economic conditions or the industry.
For GWC Valve Inc, their approach to pricing depends on whether they’re on the price-taking or price-setting end of the spectrum.
Price-takers are companies that use a target-costing pricing approach. When companies have little control over pricing, they are price-takers. This often means that their product is not unique enough and there have a lot of competitors.
GWC Valve Inc is on the other side of the spectrum. Managers at GWC Valve use a cost-plus pricing approach. This approach means that they have more control over pricing. They can “set” prices to some extent. Companies are price setters when their products are unique, and in GWC Valve Inc’s place, do not have much competition. This also depends on their marketing. Valves are not a unique products because they needed internationally in all forms of machinery but with excellent marketing, they can make it exclusive.
Since GWC Valve Inc is a cost-plus company, they start with the products total costs and then adds its desired profits to determine a cost-plus. Although the company can add desired profits to their products, they must ensure that their prices aren’t higher than what customers are willing to pay.
GWC Valve Inc is a perfect example of a company that entered an industry where they knew they would be price-setters.