5 Ps - Price
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What is Price?
The amount of money needed to buy products. The considerations for setting a price are discussed below.
Next Article: 5 Ps - Promotion Back to: MARKETING
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)
- Costs of goods sold:
- 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?