©2001 kauffman center for entrepreneurial leadership ™ market study industry profile competition...

©2001 Kauffman Center for Entrepreneurial Leadership™

Market study

• Industry profile

• Competition profile

• Customer profile + target market

• Marketing mix: – Product– PRICE– Distribution– Promotion


Who/what Sets Price?

• Costs?

• Competition?

• Distribution chain (Suppliers, buyers)?

• Customer value?

19.3 © 2004 Ewing Marion Kauffman Foundation


Pricing

Break-Even Point



Pricing. 1st what is my BE?

• Every dollar received over break-even point goes directly into profits

• Break-even point

Fixed costsBE =------------------------------------------------- Sales price per unit – variable cost per unit


Pricing: 2nd what is the margin?

• Gross margin = sales – direct (var.) cost– The margin includes what you take home as

profit + what you have to pay on bills.– Percentage = (price – var. cost) / sales


Pricing strategies

Pricing strategy

Skimming

Penetration: discount pricing

Competitive pricing

Image pricing – perceived value

Patronage discounts – quantity discounts

Penetration: discount pricing

Focus on payment terms, cash

Goals

Maximize profit

Ensure adequate cashflow

Increase sales volume

Increase market share

Meet or beat competition prices

Maintain or create a certain image

Improve customer relations


Retail Mark up

• $ retail - $ cost = $ markup

• Markup %: $ markup / $ retail

• Retail: Cost / (100% - Markup%)


What do you need to know?

• Price floor (costs)

• Ceiling price (savings to buyer, competitors, substitutes, complementary products, perceived value, pressures from distributors and suppliers)

• How price aware and sensitive is the customer? What is the relation between price and perceived value?



Pricing for service business

• Do your research to find the market

price.

• Estimate non billable time: as a rule of

thumb for each 15 days worked 5 need

to be devoted to housekeeping.

• Consider differences between hourly,

daily, weekly, monthly rates, or standard

fees.


©2001 kauffman center for entrepreneurial leadership ™ market study industry profile competition...

Documents