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