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PRICING

The ideal price for any product or service is one that is acceptable to both buyer and seller.

 

From the buyer’s standpoint, the right price is a function of product purchase value and other competitive choices in the marketplace.

From the seller’s viewpoint, there are many potential pricing objectives, but the basic concern for almost all business is to price products to maximize both sales and profit. (Discuss)

Listed below are steps to consider for determination of product pricing:

· Analyze the size and composition of your target market

· Research price elasticity for your product

· Evaluate your product’s uniqueness

· Select your channels of distribution

· Consider product life cycles

· Analyze cost and overhead

· Estimate sales at different pricing levels

· Consider secondary pricing strategies

What does price elasticity mean for product pricing? What does Predatory pricing or defensive pricing mean? 

Break-even analysis:

Volume of sales needed to at least cover all your costs. TR= TC

1. Sales price per unit – VC per unit = contribution margin per unit

2. Contribution margin per unit divided by sales price per unit  = contribution margin ratio

3. Breakeven Sales Volume = Fixed Costs divided by contribution margin ratio

 

Most common errors made in pricing are:

1. Pricing products or services based solely on the cost to produce.

2. Pricing products based on competitor’s prices.

3. Not pricing product relative to its value!!!

 
 

PRICING ASSIGNMENT

 

STEP ONE:

Must identify competitive price structure you are operating under.

· Pure competition – many competitors, no differentiation in product, same price is very elastic or sensitive to price changes

· Monopolistic competition – no dominant competitor in the industry, very little differentiation, elastic price conditions.  Use markup on selling price method to pricing

· Oligopolistic competition – industry has a dominant competitor.  Price is inelastic. Use markup on cost method for pricing.

 

STEP TWO:

Build a demand curve.  Consumers determine product demand curve with emphasis is placed on shifting demand curve upwards to the right.  Curve helps marketers understand how customers determine market value.  Develop a plan to take market share away from your closest competitor.

Choose four competitors product pricing and plot on a curve using a bar graph.  List the price for each on the vertical axis. The competitors are Nike, Adidas, and Puma.

 

STEP THREE:

Determine competitive price range.  Ceiling and floor pricing from step two to determine your range.

FLOOR- cannot sell below without changing our consumers’ view of your product.

CEILING-price too high changes view of what my product is?  You can raise the ceiling if you are successful with your marketing efforts by creating greater value.

 

*Price development – strategically where am I going with the product? Link to market share objectives.

*Price relative to value…competitive price range.

Pricing of Product

Q: From the seller’s viewpoint, there are many potential pricing objectives, but the basic concern for almost all business is to price products to maximize both sales and profit. (Discuss)

· Analyze the size and composition of your target market

In setting costs for your item or benefit, one of the first figuring you should do is to gauge roughly how expansive your potential bargains volume could be, taking into account a sensible evaluation of your potential piece of the overall industry in the item class, at diverse cost levels. Knowing the span of the existing business sector is basic to verifying if there are sufficient clients to build and develop a business.

· Research price elasticity for your product

If the interest for your item or administration updates essentially with slight updates in value, the item classification is acknowledged to be flexible regarding cost. Provided that no critical volume updates happen, even with critical cost updates, the class is inelastic.

· Evaluate your product’s uniqueness

The closer your item takes after competitive items, the more modest the value contrasts that purchasers will tolerate. What’s more the less the item distinctions between marks, the more excellent the likelihood is that the class is costing versatility, and that make unique. The sources of item uniqueness must be both conspicuous and esteemed by purchasers. Furthermore hinging on the classification, exceptionally novel items might possibly be promptly acknowledged by purchasers.

· Select your channels of distribution

At the time you have constrained assets, its regularly best to select a solitary dispersion channel or a predetermined number of appropriation channels that offer: most fabulous simplicity of entrance against the rivalry, the least expense of section contrasted with the rivalry, minimum money related danger and duty to the exchange, sufficient volume potential to arrive at transient association objectives and Pricing levels to furnish adequate association incomes and benefit edges.

· Consider product life cycles

Numerous item classifications have huge advancement and life cycles that may influence estimating decisions. These enduringly advancing high-tech classes make it challenging for associations to recuperate advancement costs, correctly foresee deals volume, bear the cost of arranging showcasing backing, and cost items faultlessly in connection to a contender’s item.

· Analyze cost and overhead

A few objectives need to be tended to in confirming rectify item evaluating are to Cover the expense of handling the products or administrations, Cover showcasing and overhead liabilities, Provide benefit goals, Afford circulation margin rebates, Afford bargains requisitions and Be focused.

· Estimate sales at different pricing levels

Determine what number of comparative guide contenders you have and they’re evaluating distinctions. Recognized worth is additionally significant in numerous classifications. Strict cost for every unit or ounce examinations may not be dynamite to purchasers, in the event that they recognize that one item is much higher quality than another. Determine cost flexibility, or “cost affects ability” for the business. Provided that you have a value touchy classification and substantial volumes contrasts happen at different cost contrasts with items on special, it still may be troublesome to faultlessly measure cost versus volume differentials since different components might additionally become an integral factor.

· Consider secondary pricing strategies

The essential objective of profiting, an association can have numerous diverse valuing goals and methods. Bigger associations might use item evaluating in a ruthless or opposing form, to assault or safeguard against a contender. A great estimating system will likewise show guidelines for activity on account of value builds or diminishes. Take reasonable, more modest benefit edges if your classification fragment is cost flexible.

What does price elasticity mean for product pricing? What does Predatory pricing or defensive pricing mean?

Price elasticity means for product pricing: The more excellent the value versatility, the closer you may as well value your items to comparative intense items and vice versa. While your item may be exceptional, buyers won’t pay much of a premium for it if there are comparative aggressive decisions at easier costs.

Predatory pricing or defensive pricing means: Predatory pricing is the act of pushing an item or benefit at an extreme level value, proposing to drive competitors out of the business sector, or make obstructions to entrance for potential new contenders. If contenders or potential contenders can’t uphold equivalent or lower costs without losing money, they go bankrupt or pick not to enter the business.

STEP ONE: Must identify competitive price structure you are operating under.

It is an oligopolistic competition, it is a sector structure in which a couple of firms pitch either an institutionalized or separated item into which section is challenging in which the firm has constrained control over the item value due to shared reliance and in which there is commonly non price rivalry.

STEP TWO: Develop a plan to take market share away from your closest competitor.

If you grasp the principle of doing your best, the amount of competition does not matter. The fact is that the amount of competition in the market should motivate you a lot that you become better than them and everybody buys from you. A lot of the competitors are not doing their best work because they are searching for easy and fast success. This leaves a very wide opportunity to establish the product in the market and gain lead. If a competition is better in a particular area then it is better to look for the loopholes that they are not filling. This will help in capturing the market from a different area.

Great marketing involves everything from creating sales to identifying your market. One part of marketing is to create a ‘brand.’ Branding is not just for big business but it is to create an image that compels people to have good expectations from the product. My plan is to keep the price low from my competitor and at the same time expect good, satisfying and extended results from the product. This would help in grabbing the market share that belonged to my competitor and shift it to my advantage.

Competitors’ Product Pricing

As the graph shows, the product of the brand that is the most expensive one has decline in demand but the product number one with fewer prices and more demand do not have enough supplies. This shows us that pricing actually does not matter and being cheap will not sell your product.

STEP 3: Determine competitive price range

Competitive price range is the price lower than the competitor and more attractive by offering additional incentives. It is the most important part when one is launching a product. The price should be well enough to be in the range of the buyer as well as fulfill the needs of the supplier and manufacturer. Being cheap and not able to afford your own manufacturing material will stop the supply of your product.

Floor Pricing: Pricing the product for a far too low cost can have a very bad impact on the bottom line although the businessmen think that they should lower their prices when the economy Is not strong enough. But the buyers want to feel that their money spent is being worth it so they will not buy products that are ‘cheap.

Ceiling Pricing: On the other side, fixing the product on a very high price would compel the buyer to compare your price with your competitor. This can also result in the decrease of your sales. The businessmen should put themselves in the shoes of the customer and then think what kind of pricing would they want on the product.

Demand D1 1.0 2.0 3.0 4.0 5.0 50.0 45.0 40.0 35.0 30.0 Demand D2 1.0 2.0 3.0 4.0 5.0 60.0 55.0 50.0 45.0 50.0 Supply S 1.0 2.0 3.0 4.0 5.0 10.0 20.0 30.0 40.0 50.0 P Price ($) 1.0 2.0 3.0 4.0 5.0 117.08 140.0 145.0 149. 99 195.0

Technology Marketshare
Sales Apple Samsung Motorola Other 0.35 0.3 0.15 0.2 2