The Ministry for Development of Information Technologies and Communications of the Republic of Uzbekistan Tashkent University of Information Technologies named after Muhammad al-Khwarizmi

Variant № 20	The Ministry for Development of Information Technologies and Communications of the Republic of Uzbekistan Tashkent University of Information Technologies named after Muhammad al-Khwarizmi	Confirmed by The Head of the Department of EMICT _______N.Iminova Protocol № “___” _____ 2020 y.
1st midterm control questions on Pricing Policy for students of group 117-17 EMeu Stages of the process of price formation in enterprises in the field of ICT. Demand and supply in the market. Price formation based on them. Done by Rakhimboev S.

111-17 group

Umarova Maftuna

1. 
   The pricing decision is one of the most critical decisions that a firm can make whether planning the introduction of a new information technology (IT) service or repositioning an existing IT service. No tool in the marketing toolbox can either increase sales or reduce demand more quickly than pricing strategy. Pricing strategies for IT services have traditionally overemphasized cost-related criteria at the expense of the value of the service to the customer. Cost based pricing strategies are focused on creating short term value for the service provider. Conversely, value based pricing focuses on the customer's perception of the value of the service, not on service costs only. The goals are focused on setting prices that facilitate the development of customer relationships that can create long-term value for the customer, which, in turn, enables the achievement of the service provider's financial and strategic objectives.
   

Cost-Based Pricing. Cost-based IT services pricing is a popular method since it relies on readily available information from cost accounting systems. IT and financial managers often price IT services to yield a desired return on fully allocated costs. Service development plans typically are not approved without sufficient and timely return on investment.

The most common cost-based pricing strategies are:

1.Flat pricing. Sometimes called all you can eat or all in one pricing, users pay a fixed price for unlimited use of the IT service, typically without upfront fees. Cost recovery is a primary pricing goal.

2.Tiered-pricing. Tiered-pricing attempts to package IT services to ensure cost recovery and higher margins by matching price levels with the user's willingness to pay. This approach to pricing is an attempt to link the cost of IT services to customer service level requirements.

3.Performance-based pricing. IBM pioneered a pricing model where license prices were based on the theoretical throughput of the system in terms of the MIPS (Million Instructions per Second) capability of the machine running the software. The goal for the provider is to recover costs and ensure margins and not set prices based on perceived customer value. Customer dislike this pricing model since the same software performing similar tasks but running on different machines is priced differently.

4. User-based pricing. The charge is based on the number of users that utilize a collection of IT service capabilities over a given period of time. The assumption is usage is related to costs. The principal variations on this theme are: Per-user pricing is set to an individual user who typically can use the product on an unlimited basis for the term of the license. This approach typically offers one price for a specified number of users. High water mark pricing charges are based on the maximum number of concurrent users over a given time period. Per-seat pricing is similar to per user pricing, except that the license is assigned to the workstation and can be used by a designated number of users.

5. Usage-based pricing. Known as pay-as-you go pricing or network pricing, customers pay only for what they actually use on a transaction basis. It is often associated with an application service provider model

Value-Based Pricing. The key to value-based pricing success is the recognition that the price depends on the customer's value requirements rather than those of the IT service provider. Buyers make judgments about benefits and prices, and choose those products and services that maximize their perceived value. The goal of value based pricing is to enable long-term profits by capturing more value. That price should, in turn, determine the level of development costs that the company is willing to incur and what services can be sold given the cost and residual margin structure. Customer Value Drivers Customer value is the overall benefit derived, as the customer perceives it, at the price the customer is willing to pay. IT service providers must first understand how their customers perceive value. Perceived value is defined in terms of the tradeoff between perceived benefits to be received and the perceived price for acquiring the product or service that delivers those benefits. Service providers should understand what these tradeoffs are and how to influence product and service configurations that can maximize customer value and business outcomes. The power of choice mandates that those configurations that deliver superior value will win in the market place.

2. 
   Demand. The law of demand states that there is a negative relationship between the price of a good and the quantity purchased. It is merely a reflection of the basic postulate of economics: when an action becomes more costly, fewer people will choose it. An increase in the price of a product will make it more costly for buyers to purchase it, and therefore less will be purchased at the higher price. an increase in price will cause buyers to reduce the quantity of their purchases. The demand curve isolates the impact of price. Other factors that might influence the choices of consumers are held constant. For example, factors like consumer income, price of related goods, expectations about the future price, and the preferences of consumers are held constant when the demand curve is constructed. Changes in these factors will shift the entire demand curve.
   

Supply. The law of supply states that there is a positive relationship between the price of a good and the quantity of it that producers will supply. Business, firms, and other producers purchase resources and combine them into goods and services. The resources have alternative uses so producers will have to pay resource owners a price sufficient to attract them from other potential users. Thus, product suppliers will incur costs as they purchase resources. Producers are in business to make a profit. In order to do so, they will have to supply products that can be sold for a price that is greater than the costs of the resources required for their production. As product prices increase, suppliers will find it profitable to supply more and more units. This accounts for the direct relationship between the price of a product and the quantity supplied by producers.

The forces of demand and supply combine to determine the market price. Market forces will tend to generate prices for products that will bring the quantity demanded by consumers into equality with the quantity supplied by producers. At this equilibrium price, the actions of the consumer-buyers and producer-sellers will be in harmony. Both will be able to realize their choices simultaneously.

While demand and supply analysis provides insight on how markets allocate resources, it is also enlightening to see what happens when governments use the political process to fix prices and interfere with markets. Sometimes either buyers or sellers with special interests will seek to gain by getting the government to impose price controls. Price controls may be either price ceilings, which set a maximum legal price for a product, or price floors, which impose a minimum legal price. Imposing price controls may look like an easy way for the government to help buyers at the expense of sellers (or vice versa). However, price controls generate secondary effects that reduce the gains from trade and often harm even the intended beneficiaries.

Technology has had a depressing effect on agricultural prices in the long-term since producers are able to produce more at a lower cost. At the same time, both population and income have been advancing, which both tend to shift demand to the right. The net effect is complex, but overall the rapidly shifting supply curve coupled with a slow moving demand has contributed to low prices in agriculture compared to prices for industrial products. At various levels of a market, from farm gate to retail, unique supply and demand relationships are likely to exist. However, prices at different market levels will bear some relationship to each other. For example, if hog prices decline, it can be expected that retail pork prices will decline as well. This price adjustment is more likely to happen in the long-term once all participants have had time to adjust their behavior. In the short-term, price adjustments may not occur for a variety of reasons. For example, wholesalers may have long-term contracts that specify the old hog price, or retailers may have advertised or planned a feature to attract customers.