The success of any business largely depends on a high and stable level of sales, as well as on the correct pricing of all goods and services. These two parameters are interconnect. The price should be balanc and objective:
What is pricing and its main objectives
Pricing is the process of determining the price of different products. During pricing, a company evaluates its product and decides what total final price it can sell it for to the consumer. The most important thing here is to justify the price correctly.
Why pricing is necessaryThe price of any product cannot be set randomly: without information about the market, preliminary analysis and specific calculation. Simply because it seems so, for example, to the head of the company.
What influences pricing: main factors
The most difficult part of the pricing process is to determine what price will give the greatest desir effect for the business, taking into account its goals, objectives, and initial conditions: internal and external factors.
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Factors are most often divid into the following global groups: internal and external:
- Internal pricing factors are circumstances that are under the direct control of the business at all times. They can be promptly influenc in accordance with strategic goals .
- External factors are what the company cannot control. There are macro factors, such as cataclysms, global crises, inflation. And micro factors – changing trends, elasticity of demand in a specific market, and so on.
Internal factors
1. Quality and uniqueness of the product. The level of quality and uniqueness of a new product can ultimately significantly affect the price. Products with high add value, innovative or exclusive products will be justifiably expensive. There will be demand for them in any case, since they have their own value.
External factors
In many ways, they are consider more significant because they cannot be controll or chang to suit the nes and interests of the business. External factors can only be prepar for or quickly adjust to at the right moment.
1. Demand for the product. The most important factor that affects the price of the product. Usually, when demand is high and supply is limit, the company can influence the price change and increase the cost of one product. This way, it can make a higher profit per unit of production.
What are some effective pricing methods?
There are different methods for determining an acceptable price for a product. Each of them is unique and can be appli in certain situations, depending on your niche, company goals, the nature of the product, market conditions and many other pricing factors. Remember, choosing a method can be difficult.
Costly
Cost-bas pricing methods most often help large companies correctly determine the cost of a product, goods, or service, bas mainly on their internal nes and indicators. They are bas on the analysis of all costs associat with the production and sale of products.
1. Cost plus markup method
This method involves adding a fix markup to the cost price (variable costs) of the product.
2. Full Cost Method – Cost-Bas Pricing
Here, the desir profit is add to the total cost price (the total of fix and variable costs) of the product. The method allows for a more accurate determination of the minimum price necessary for the sustainable functioning of the company, taking into account all possible expenses.
3. Marginal cost method
This pricing method is relevant for those who want to selection of keywords in yandex wordstat increase the volume of sales of goods within the framework of an existing production. It is us if the current business model already covers fix costs – that is, the business is at zero or makes a profit.
4. Method of accounting for return on investment
If a business nes investments to launch production, then it is necessary to determine the price taking into account the return of personal funds. That is, add a special coefficient to the costs that will cover all expenses.
Market
These methods of price calculation are relat to the analysis of one or another aspect of the market. For example, competitors or the balance of supply and demand. Let’s look at the main methods of calculation in more detail.
1. Focus on competitors
If there is intense competition in the market, then in order for demand for a product to be at a good level, you ne to focus on competitors’ prices for similar products.
Parametric
Parametric methods are often us when a business nes to set a price for products and there is little data on the external and internal environment. Then empirical or already establish indicators are us.
1. The method of point assessments is expert
Experts evaluate the product itself and its characteristics and assign it a certain number of points. Each product characteristic is assess on a scale, and then the points are add up to determine the overall value of the product.
2. Aggregate method
Companies often use this method to calculate the cost opt in list of multi-component goods. In this case, the total price is made up of the cost of each element of the design. For example, the price of a car.
How to set a price for a product
If you want to set the price of your product correctly, it is important to follow a certain sequence of actions. Let’s look at the main steps that are necessary to set the retail price of a product:
- Set the company’s goal.
- Define your unique selling proposition and find your target audience .
- Calculate all fix and variable costs.
- Research the market: study demand, competitors and other macro factors.
- Bas on the data obtain, select a pricing method.
Step 1
After setting the goal, you ne to determine the characteristics of your own product in order to understand how much money you ne to spend on its production and sale of the product.
Let’s sum it up
Pricing is a much more complex and important process than it may seem at first glance. The ability to correctly and timely set a price for a product requires a manager, financier or marketer to have a deep understanding of the market, the competitive environment, as well as the nes and expectations of customers.
