Plan - Pricing

What is a Price?
A price is taken to be the amount of money that something is bought or sold for. Any product or service will have a price and the seller may have a price that is different from what the buyer thinks it is worth.

A product will have a sales value on it which is generally the price or the cost which is taken to produce that product and includes a profit margin for the producer.

Price for Profit
The main objective of every business is to make a profit. There are a number of factors that come into play that affect the profitability of the business. These will include the resources in the business such as employees, management, location, competition, market demand and the cost of producing the products.

" The main objective of any business is to make a profit ..."

In our free enterprise system you have the right to establish whatever price you want for your products. That price may be determined to a great extent by the market demand and by your competitors.

You have to understand the market for your products or services as well as distribution and competition before you can establish a final price. You have to know all your costs and you must have an understanding of the marketplace including the technologies available and the thinking of the buying public.

You have to constantly abreast of all the factors that affect pricing because you may have to make changes in order to sell your products.

Pricing your Product
Pricing your product is an important part of your marketing program, whether you are a manufacturer, a wholesaler, a retailer or a consultant.

There are 4 keys to pricing:

  1. You need to know your market.
  2. You need to know your costs.
  3. You need to know your competition.
  4. You need to know the goals of your company as to profit.

When you are calculating your costs it is sometimes clearer to wholesalers and retailer but it is not so clear to manufacturers. In order to arrive at the final cost of your finished products the manufacturer needs to establish a costing system to account for the cost of materials, direct labour and factory overheads.

If you are the manufacturer then once your costing is complete you will need to determine a fair list price for your products that will achieve your desired profit objectives. This price can only be set after taking into consideration the market demand as well as your competition.

Other factors that will come into play when determining your price include:

  • Penetration of new markets.
  • Your attempt to increase your market share.
  • Previous actual and projected profits.
  • Whether you wish to meet or exclude the competition.
  • The life cycle of your products.
  • Other external factors such as economic trends.

Each of the above factors will pay a major role in your final pricing decisions. Small manufacturing businesses need to consider their pricing practises so that they are not outdated. Markets do change and pricing practises that were effective a year ago may no longer be appropriate. This means that changes are required.

Pricing practise needs to be reviewed regularly to take into account the impact of rising costs, the economy, tougher competition etc. Good pricing practise will require a full understanding of the factors that influence the market, new technology, competition and the economy in general.