Pricing Flashcards
What is the first step in pricing a product or a service?
The first step in pricing a product or a service is to investigate this product/service.i.e. what is special about our product?Also, are there similar products to our product? if yes , how are they priced?
Moreover, Where are we in the growth cycle of the industry? Are in the Maturity phase, or in the growth phase or in the maturity phase?
Furthermore, how big is the market? and what are our research and development costs?
What is the second step in pricing a product or a service?
The second on pricing a pricing a product or a service is to choose a pricing strategy .
in other words, is the company in control of its own pricing strategy , or is it reacting to suppliers and consumers, or is it reacting to other competitors offering the same product and service?
When a company is in control of its own pricing it can base its pricing on two different strategies:
1- it can follow a cost-based pricing strategy meaning it can calculate how much it costs to develop this product/service and a margin of profit on top of it.
2- It can follow a price-based costing i.e. how much people are willing to pay for this product.
Other considerations, is this product a “must-have” product? Do we need to spend on educating people how to use this product?
What is the third thing that we must consider in pricing a product/service?
The third thing that we must consider when pricing a product is supply and demand.
What is the supply and how is the demand?
Also, how will pricing have an effect on market equilibrium?
Furthermore, we can consider matching equilibrium : meaning what are the similar products selling for?
Overview on competitive analysis
The competitive analysis asks the following?
Are there similar products? and how does each similar product compare to the competition?Do we know their costs and how are they priced ? Also are there substitutions available for the products?
Overview on cost -based pricing
Briefly, you add up all the costs and put a margin of profit .
Profit margins vary greatly between industries for example grocery store have a small margin of profit unlike drug industries.
Overview on breakeven point (just for info)
is the point at which total cost and total revenue are equal
overview on price based costing
Meaning costing will be based on pricing? In other words, we see how much people are willing to pay for this product and compare it to the costs of developing this product.
