Pricing for Profits
Factors affecting price
Pricing Policies
Pricing Strategies
Pricing Techniques
Do you have what it takes?
Markup
Factors Affecting Price
Economic Factors Businesses Involved in Distribution Competition Cost and Expenses
Economic Factors
Supply: the amount of a good or service that the producers are willing to provide.
The producers are more willing to supply products/services in greater amounts when prices are high; less willing to do so when prices are low
Economic Factors
Demand: the amount of a good or service that buyers are willing to purchase.
Buyers are more willing to purchase products/services in greater amounts when prices are low; less willing to do so when prices are high
Channels of Distribution
Each business that is involved in the distribution of a product raises the price of the product.
Competition
How the competition is pricing their product/service may determine how YOU will price yours.
Costs and Expenses
In order to make a profit, your prices must be set so that they will exceed your costs and expenses.
Pricing Strategies
Cost-based pricing Demand-based pricing Competition-based pricing
Cost-based Pricing
Cost of the product+ Cost of doing business+ Projected profit margin
= Customer price
Demand-based Pricing
Set your price according to what customers are willing to pay
Must have a good understanding of consumer’s perception of the product/service
Competition-based Pricing
Determine your competitor’s pricing
After this, you must decide to: Price below the competition Price in line with competition Price above the competition
Pricing Policies
One-Price Policy: All customers pay the same
Flexible-Price Policy: Customers can negotiate for the best deal they can get
Pricing Techniques
Psychological Pricing: Uses price to affect the customers’ perceptions of a product/service
Discount Pricing: Offers reductions from the usual price of product/service
Pricing Techniques
Psychological Pricing
Prestige pricing: higher than average to suggest exclusiveness, status, prestige
Odd/Even pricing Odd prices suggest bargains Even pricing suggest higher quality
Pricing Techniques
Discount Pricing Cash: encourages customers to pay bills
early Quantity: offered to buyers for placing large
orders Seasonal: offered to buyers who are willing
to buy in advance of customary buying season
Promotional: offered to buyers who are willing to promote a product/service
Markup
1. Amount added to the cost of an item to cover expenses and ensure profit
2. Not generally decided on an item-by-item basis
3. A standard percentage
Markup Percentage
1. Based on amount the business needs per item to cover expenses
2. Matches the markup of competitors
3. Based on the average markup for the industry
Markup Percentage
= Percentage of Markup
Markup__________
Cost
Retail Price
Cost x Markup % = $ Markup
$Markup + Cost = Retail Price