What is Price?

The amount of money needed to buy products. The considerations for setting a price are discussed below.

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Consideration in setting Price

• What is the consumer acceptance price range for this type of product/service?
• How does the proposed product's/service's price compare?
• Is there sufficient margin between the manufacturer's cost and the consumer acceptance price level to provide for markups at the wholesale, distributor and retail level?
• Does the price allow for freight, projected profit, price fluctuations in the market place and consumer interpretation ofvalue?
• Are coupons or discounts being considered to promote consumers to try other flavors, etc.? Product introduction.
• What is the product cost breakdown?
  • Costs of goods sold:
    • direct labor
    • direct materials
  • Operating expenses
  • Selling expenses
  • Communications expense
  • General and administration expenses (including freight)
• What markups are allowed at each level of distribution (markup chain and channel pricing)?
• Are the most economical/cost efficient methods of processing and packaging utilized (including raw materials inputs) to keep product/service costs down?
• Other Price Considerations:
  • List Price
  • Discounts
  • Bundling
  • Payment Terms and Financing Options
  • Leasing Options

General Tips

• Review product/service costs for accuracy, including all variable and fixed expenses.
• Be sure all products/services carry their share of overhead expenses plus provide for profit.
• Compare prices for your products/services with similar products/services in the industry.
  • If your prices are higher, do they provide the necessary added value to justify the higher price?
  • If your prices are lower, do you know why they are, and is the lower price part of your marketing strategy?
• How price sensitive is your market -- in other words, how much change occurs in buying behavior when prices rise or fall?
• Do your prices position you as "top of the line" or "bargain basement?" Are you happy with your position?
• Does your current marketing strategy support this price position?