SLC | S21W5 | Costs for entrepreneurs - Pricing

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Pricing is very important in any business because it directly affects profit and customer perception. There are several reasons why pricing is important.

Profitability:

Pricing your product appropriately in your business ensures that it covers all of your business costs and makes you profitable. If your prices are too low, your business will grow; if your prices are too high, you will lose customers and fail.

Market Positioning:

The price of the product is what defines the product and its position in the market is determined accordingly. Therefore, if its price is high, it will lead to luxury and premium quality. If its price is low, it will be better for budget-conscious consumers and will attract them.

Sales Volume:

If our products are priced right, they will attract customers and increase our sales volume. If prices are too high or too low, sales may decrease and the customer base may deteriorate.

Customer Perception:

Price has a significant impact on our product because it helps the customer understand the value of the product. If our price is good and reasonable, the customer will also show loyalty to us. If it is unreasonable, then there will be a negative impact on our business.

Flexibility:

If we use a deliberate technique to set our prices, then we need to fluctuate them according to the market. And this flexibility allows us to change that.

Competition:

Pricing can also affect how our business performs in the industry. We should set a reasonable price so that those who have market share are attracted to us. If we ignore the prices of others, we will lose even more customers.

In short, we set our prices so that we can grow our business and shape our market influence in the right way. Using these strategies, we can improve our business, and they are not set simply to cover costs.

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Some important aspects need to be considered when pricing our products so that we can adapt our business to market conditions and customer expectations. Some are given below:

Cost of Production:

It is very important for us to understand the cost of our business or the cost of our product because these are the direct costs or indirect costs that are included in them. Direct costs include our materials labor, etc. Indirect costs are the costs that are for our utilities or marketing. To achieve our profit, we set our prices to cover the costs of these things.

Market Demand:

We need to assess the demand for the product or service in our business, where high demand justifies higher prices. If there is low demand for something, a discounted price may be needed to attract buyers. We need to look at these.

Competition:

We need to do a proper analysis of the products in our business, there we need to decide whether our product demands a higher price. If our product offers a higher price, we will increase our price. And if we need to reduce it because it attracts more customers. So we need to match the prices of the competitors.

Target Market:

We will price our products on the basis that they are affordable for the consumers we want to serve so that we can understand their income level and purchasing behavior.

Business Objective:

To set the price in our business, we have to think about a broad approach, whether we want to gain access to our market, maximize our profits, or create a brand image.

Economic Condition:

We have to monitor the economic environment so that we can gain consumer confidence. Because in a strong economy, consumers are willing to pay higher prices, so we can improve our prices at that time. But in a bad economy, they also need to reduce their prices.

Product Lifecycle:

At different stages, we may have to set different prices because if we want to bring a new product to the market, we will need to reduce its price. And for those that are already established, we can maintain the price or increase it slightly.

Profit Margin:

We have to make sure that what we are pricing is giving us a reasonable profit margin because there are efforts, investments, and all sorts of things involved in providing margin, which also reflects the level of risk.

Brand Positioning:

The price of your product reflects the position you have established in your market and where you stand. If you are a premium brand, its price will be higher. And if you are a budget brand, then it is targeted to attract cost-conscious consumers.

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Here are some examples that fit on pricing methods:

Cost-Plus Pricing:

Here we will take the example of a manufacturing company such as Caterpillar. Such businesses use prices above their cost because they have to cover their total costs, which include their materials, labor, and overhead costs. And then they need to add a fixed markup for profit. A company like Caterpillar can calculate its total cost of ownership and add its profit to it to determine the construction cost of its equipment.

Penetration Pricing:

In this, we take streaming services as an example, including Netflix, etc. These are companies that initially set very low prices for users or offer them free torrents to gain market share and customer trust. When they gain trust, they gradually start increasing their prices. This is also what Netflix is based on, which is what makes traditional cable TV services cheaper.

Skimming Pricing:

For example, we talk about tech companies, including Apple, etc. Apple uses price cuts for its new products, including the iPhone and the MacBook. But initially, it keeps its prices high so that those who want to get the latest technology at a high price can pay a premium for them. But as the demand for it decreases, it also reduces its price so that it can attract more sensitive consumers.

Competitive Pricing:

In this, we will take an example of retail stores which include Wal-Mart Amazon, etc. These are the stores that are known for their pricing strategy, they compete with each other. They try to keep their prices lower than them so that these companies can attract more and more customers towards them.

Bundle Pricing:

Bundle prices include some software companies such as Microsoft or Adobe, etc. These are companies that offer packages of their products at a lower combined price, in a bundled price because they are not purchased individually. For example, Adobe offers a suite of all its Creative Cloud products, which includes Photoshop, Illustrator, and various other tools. They charge a bundle price to convince others to buy their software as a bundle.

Economy Pricing:

This includes, for example, discount airlines, including Spirit Airlines, etc. These are airlines that offer us low-cost flights by eliminating extra costs and amenities. They significantly attract those who are sensitive consumers. They compensate for the low ticket prices by charging for things like luggage and in-flight meals.

In my opinion, these were some examples that fit into our pricing method in the business.

To achieve the desired profitability here is the practical work on the A4 page

• For the domestic market we set $26.24. Here is the practical work on the page, how we get this amount*
  
  
  

The company must set a price of $26.24 per unit to achieve the desired profit, while its competitor is selling the same product for $28 per unit.

The company's price is $1.76 lower than the other, which makes it possible to truly compete because the low price gives Stamens a competitive advantage. In this case, they are more likely to choose our product because it tends to be more affordable.

In addition, Steemians is earning a 20% return on investment despite its low price. Because the $26.24 price already includes the required profit, it means that Steemians is maintaining its profitability while being more attractive to price-conscious consumers in the market.

Thank you so much guys for staying. I will do my best to perform this task according to my knowledge. I would like to invite @bossj23, @josepha, @kouba01, and @rumaisha to join this task.

Cc:
@adeljose, @yolvijrm

_{Dated: 25-11-2024 About Me}