Marketing with mon
As we already know, PRICE is a huge part of a product. It's one of the first things consumers look at when considering a product as they want to make sure that they're going to be spending their hard earned dollars well. Companies spend a significant amount of time trying to price their product correctly keeping in mind that they also need to make a profit. There are 6 major steps in determining a price.
1. Identifying Pricing Objectives and Constraints:
2. Estimate Demand and Revenue: Based on research, companies will need to estimate who will buy their product and what they think revenue could be if they set it at specific prices. They quite often use demand curves to help in their estimations and these are graphs relating price per units and quantities sold. They base these numbers off of three important factors:
3. Determine Cost, Volume, and Profit Relationships: When pricing a product, it's important for companies to determine how much they are paying in fixed costs, variable costs, unit variable costs and marginal costs (totaling up to total costs). This will set at least a Break even point, which is a certain amount of money they should make to cover the expenses they used to produce the product, so they can keep themselves from going bankrupt. 4. Select an Approximate Price Level: At this point, companies can begin to approximate what their price should be. They've done enough research to (probably) accurately determine what consumers would pay for the product, keeping them happy as well as keeping the company in good financial standings. This price might be debated a little to ensure that the company is making the largest profit possible. 5. Set list or Quoted Price: Now it's time to actually set the price and make it aware to the customer. They'll either react well to the price and they'll know this because there will be a high demand and high sales or sales will be lower than predicted and they'll have to change the price accordingly. 6. Make special adjustments to list or quoted price: Most times if a consumer is reacting well to a price, companies won't change the price. Some products are expected to have some fluctuation, especially natural resources like oil. However, rarely will we see a price go up if it's doing well but if a product isn't selling, a company will lower the price, offer discounts or sales, to get their product out into the public. Companies usually offer the product at the highest price to yield the highest profit in order to leave room for error.
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Monica AndreaniJunior at Saint Michael's College, MJD major, Business minor. Here to teach you the basics of Marketing. Archives
April 2015
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