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The pricing policy for a service or product comprises of three ways to enhance profit maximization. They include the owner of the business selling more, cutting costs or increasing profits through a better pricing strategy (Stevens et al. 2012). When the costs are low and no sales can be realized, it is good to adopt a good pricing policy to remain competitive in the market. In this case, a market-oriented pricing policy will be used by the cable company. This includes setting price founded upon research and analysis of the target market. This means that the company will set prices depending on the results of a primary research that will be conducted. Basically, the company will set lower prices than its competitors.
The chief objective of the cable company is to ensure profit maximization. In order to achieve this, the company ought to formulate the pricing policy in a way to maximize profit and sales revenue. Besides, facing competitive situation will also be one of its objectives. According to studies facing competitive situations is of paramount to the success of the business (Stevens et al. 2012). If the company is aware of its competitive products, it will match its pricing to that of its competitors to increase its market share. Lastly, the pricing policy will aim at capturing the market. The company will achieve this by placing a lower price than its competitors.
Demand delineates the number of clients purchasing a service or product at a particular price. Demand of the broadband Internet is high and this is linked to the lower prices offered as compared to those of the competitors. In addition to retaining customers, this kind of pricing would attract novel clients.
The costs that will be incurred by the company during the installation of broadband Internet to its consumers include installation costs, gateway costs, subscriber unit costs, and administrative costs. While determining the actual price of the service, these costs must be put into consideration. The company would be in a position to make profits only when the price set surpasses the costs incurred. The estimated costs are as follows:
Installation costs: $1000
Subscriber Unit Costs: $700 monthly
Gateway Costs: $400
Administrative Costs: $300
While setting the price of the broadband Internet, the company must put into consideration the prices of its AT&T U-verse and DirecTV, being the major competitors. For instance, if the price of DirecTV is $120, AT&T U-verse is $150; then the cable company should set its price at $100.
As aforementioned, the pricing method to be used in this case is market-oriented pricing. The company will set the price of the broadband Internet at low price as compared to that of the competitors. This pricing strategy would increase the customer base, and service provision, resulting in profit maximization. The price of the cable company has been set at $100, a lower price than that of the competitors in order to capture the market.