for convenience, pricing objectives can be divided into three categories, which are: This is a topic that many people are looking for. bluevelvetrestaurant.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, bluevelvetrestaurant.com would like to introduce to you Pricing Objectives & Strategy. Following along are instructions in the video below:
“The right price on your product or service can have a big effect on your your number of sales today. We re going to talk about pricing objectives and strategies start out there are five pricing objectives. The first is to achieve a target return on profit. What does this mean when pricing a product or service.
You want to ensure that the price is greater than all of the costs to make that product or service. Naturally businesses wanting to make a profit on what they re selling for example. A company that sells cashews may reduce the amount of cashews in a bag in order to increase their profit margin. The second pricing.
Objective is to build traffic this can be done through using lost leaders. Last leaders are when a store sells and advertises a product to be low cost in order to get people into the store. Let s say it s back to school shopping. Time walmart might offer three ring binders below the cost of what it takes to produce them this might get people into the store to purchase those binders and then while they re there they purchase several other items.
Which generally will make up the difference so that walmart can still make a profit. Sorry pricing. Objective is to increase market share this means that a store may offer lower prices in order to get more customers they may have less profit on each item they sell but because they have so many people purchasing items it results in a good profit. The fourth pricing.
Objective is creating an image some businesses might price their items really high in order to give customers the feeling of high status or exclusivity. Think of burberry or coach any high end store lastly..
You have furthering social objectives for example. An organization might set a price really low. So that people can afford it a good example of this is that the government might subsidize a farm. So that milk and bread costs can be lowered.
Now we ll move on to the three major approaches to pricing strategy and the first is cost based pricing cost based pricing includes the total cost of a product plus. The profit margin. So for a car you would take all the costs that go into making their car the labor. The parts the shipping and after determining your price for producing the car you would decide what type of profit.
If you d like to me. And that s how you tell your price next you have demand based pricing. Which is based on target costing. It satisfies the customer and it meets the set profit margins.
You first determine what a customer would be willing to pay for side product. Then you subtract your desired profit margin. And you come up with the amount of money you can spend on production. Think of a laptop.
It means to be a product that satisfies the customer and has all the components. They want..
But it also has to be at a cost that people are willing to spend. But determine all the components you want to have in the left and then subtract your profit margin and see what the cost is if it s still too expensive you might have to reduce more of the component for use lower quality material and then third. We have competition. Based pricing businesses will choose to set their price at either equal to above or below competitor prices.
They will consider their perceived differences and customer loyalty let s consider fast food hamburgers. One hamburger shop might sell their burger for three dollars. They used heavily processed meats and bread and a competitor might sell theirs for four dollars. However they use fresh bread and fresh nee.
The company that sells it for four dollars. Realizes that there is a difference between their two hamburgers in the quality. So they can still do well and succeed with a slightly higher price. Along with competition ace pricing is price leadership in which a dominant business sets.
The prices that all other businesses follow you might think of gas and oil a very key component of pricing is completing a break even analysis. A break even analysis tells you how profitable you ll be at various levels of sales. So if you sell 10 units you ll be this profitable. If you sell 50 units you ll be this profitable.
It also helps you to determine how many of units you need to sell in order to make a profit. This is called the break even point to find your breakeven point..
You add up all of your total fixed costs. Which includes anything that doesn t change based on your number of sales such as rent for the building and business insurance. And then you divide the price of one unit minus the variable costs the price of one unit is what you decide to charge the consumer and then variable costs are costs that change. According to how many items are made so an example of variable costs would be the cost of labor and the cost of the materials for making a product.
You then have a starting point for understanding. How many items you need to sell in order to break. Even okay. Now i want to quickly mention five other pricing strategies.
The first is skimming skimming is when a company sets the price of a product high at first in order to help recoup some of the research and development cost. Let s say a brand new technology device comes out when it first them thought they might price it really high and then over time as competitors come out they ll lower their price next. We have the penetration strategy. This is when a business introduces a new item to the market.
But sets the price really low by setting the price low it discourages competitors. Because there isn t as much profit. It also enables to get more purchases for that product and sell that item quicker. There s also everyday low price strategy.
This strategy is when a company sets their prices lower than all the other competitors in order for consumers to be able to comment and all get a good deal rather than needing to wait for a sale next. We have the high low pricing strategy and what the strategy prices are generally higher than the everyday low price stores..
But when they have a sale the price can be quite a bit lower for that particular item and lastly. We have psychological pricing. Which is basically just setting price points. That make the cost appear lower than it actually is such as.
Pricing some earbuds at 1999. Rather than 20 today as an overview. We covered five pricing objectives. Three major approaches to pricing strategy.
Breakeven. Analysis. And five other pricing strategies. Thanks for watching created.
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