Pricing is an important aspect of your product
Pricing is an important aspect of your product, to maximise profit a business needs to get the perfect price for their product because if the price is too high the customer won’t want to buy the product but if it is too low the product won’t make any profit. You can target a customer by price through their socio economic groups for example rich people can afford to drink champagne and are probable willing to pay more for the product but if they look at the price and it is very cheap they will think there is something wrong with it. This is called psychological pricing, for products of high status products like champagne tend to be priced at prices like £15 rather than £14.99 or £9.99 this is because they try and match the customers expectations of higher quality. Another example of this is a product may be priced at £199,99 to make it seem to the customer it is good value of money rather than £200.
One of the hardest things to do when starting a business is name the price of your product. This is because there is many factors that could make you product not sell if you don’t take they into account; they are the cost of your product, the price of your competitor’s product, the type of product, where the product is places and the demand. There are various techniques to determine price of a product some of these are cost based pricing, market orientated pricing; price discrimination, penetration pricing, creaming or skimming and competitor based pricing.
Cost based pricing is where a retailer works out the cost of selling a product and then they would add a profit margin or mark-up to it. The cost of selling it is made up of the variable cost which is mainly buying the product and the fixed cost which is the wages of the staff, the rent and the heating and the lighting This is good because it means the retailer makes a profit every time but the down side of this is that the competitor may have a lower price so your customers go to them,
Market orientated pricing is where the price charged is based upon an analysis of the market and its characteristics. An example of this is a retailer may give a special discount on their product for a limited period of time to raise sales; this might be done because sales are dropping because of a certain time of year i.e. if it is February very little Christmas Crackers would sell. A few examples of these are penetration pricing, creaming or skimming prices. This is good because it raises sales and customer loyalty.
Price discrimination is when a product is sold all over the world but selling it at different prices to the different segments of the market. A company would do this in order to raise the most profits possible. For example product may cost more in England than it would in Thailand because the British buyers are willing to payer higher prices than the people in Thailand.
Penetration pricing is when a product is when a product is released into the market, it is released at a discounted price so that it maximises early sales. A good example of this is singles, they are at a reduced price so that there are maximised sales and the single gets in the charts. If it is in the charts it is likely that it will be played more on radio and television, which will lead to further sales. The down side to this is that the consumers may not want to pay more for the long term price after they have seen the initial cheaper price.
Creaming or skimming pricing is the opposite of penetration pricing because the price of the product is set high initially but lowering it later on. This is done when a product is in massive demand because it is perhaps a new idea this is done to maximise profits initially and when the product becomes more widely available the price is lowered.
Competitor based pricing is adjusting the price to the competitor’s. This needs to be judge correctly because if the price is much more than the competitors the product will sell very little and make little profit but if the product is set to cheaply the product will sell a lot but will not get much profit.