Sample Aviation Paper on Low-Cost Pricing

Low-Cost Pricing

Pricing criteria are among the most significant concerns in business regarding profit maximization. The company existsorder to earn a profit by utilizing scarce resources in economic means. Profit is a function of cost and revenues, and thus, managers must evaluate and assess any factors that can pose a significant impact. For instance, commodity prices determine the customers’ purchasing power, and this can affect demand and supply forces in general market. Low-cost pricing strategy needs to be embraced positively to ensure equilibrium in the market.

In a low-cost policy, the winner is the entity with lowest actual cost in the marketplace. For instance, if two competing companies make identical goods with the same price in a perfect market, the company with the lowest costs of production will benefit from higher sales and profits in the market. Through possessing such advantage, the low-cost firm will be able to increase its liquidity and market share. Adopting the low-cost pricing entails lowering the price for goods and services. Consequently, they can squeeze the competitor’s profits and margins. 

The bottom line in low-cost pricing is that the highest cost competitor is allowed to remain in the market through the sole discretion of the lowest cost competitor. This is because strong competitors enjoy economies of scale, and if they decide to lower their prices, they can drop it to levels that if other competitors lower their prices, they will continue incurring losses to remain in the market. In the low-cost price policy, entities must formulate better cost reduction policies to stay competitive and earn sustained profits. Organizations must be willing to standardize their offers to manage costs. That is, outstanding requests by prospective customers should be limited to keep costs to a minimum.

Why Adopt The Low-Cost Pricing?

To Increase Demand for Their Products

When the prices for specific goods fall, the demand for such goods increases. Managers aim to boost demand for a particular product, which has been moving slowly in the warehouse. To avoid spoilage and extra holding cost, managers choose to lower the prices of the goods effectively.

To Differentiate the Product from Those of Competitors

Customers tend to switch to low-priced commodities provided it is of the right quality. The low-pricing policy thus makes products’ pricing unique from competitors’ thus creating a competitive edge.

To Manage New Market Shares

The low pricing strategy needs to be adopted to boost demand for products in a new market. Consequently, customers buy such products, mainly to know whether it serves better than existing brands. The objectives of low-cost pricing include stimulating demand and access to new markets without making a loss. Demand in airline can be increased through various strategies such as:

Growing price for Competitors

            When prices in other airline companies’ increase, this leads to increased booking in the company since customers will switch to low-priced tickets.

Lowering Prices of Tickets

Price and demand are inversely proportional. The lower the price, the higher the demand for flight tickets, as customers tend to shift from inflated prices.

Low-Cost Pricing

The low-cost pricing strategy entails setting low prices for products and goods with the aim of triggering demand to increase while allowing the company to manage and gain a significant share of the market (Wensveen, 2016). This strategy is primarily used to penetrate new market segmentation, especially in entities that can produce in large batches due to the availability of cheap resources (economies of scale) and when the product has no competitive advantage in the market.

References

Wensveen, G. (2016). Air Transportation: A Management Perspective, 8th edition.