Hello everyone! I hope you will be good. Today I am here to participate in Steemit Learning Challenge of @yolvijrm about the Costs for entrepreneurs - Pricing. It is really an interesting and knowledgeable contest. There is a lot to explore. If you want to join then:

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Join Here: SLC | S21W5 | Costs for entrepreneurs - Pricing

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The pricing process is critical as it has a direct impact on profitability competitiveness, and market positioning.

We can determine the importance of the pricing process by the following reasons:

1. Revenue Generation: Revenue is the goal of every business. And pricing directly affects the revenue and profit of the business. It sets a key driver for the good financial performance.

2. Market Positioning: It is obvious that the price of the product plays an important role in the position and ranking of the product in the market. The price reflects the value, quality and the identity of the brand associated with it. A good pricing process for the product can make the position of the product strong.

3. Competitive Advantage: As we know that the products compete with each other with the price and quality and price matters a lot. So a well planned pricing process can give a company an edge over the competitors. It helps to balance the quality, affordability and profitability.

4. Customer Perception: Pricing also affects the perception of the customer. They can determine whether to buy a product or service or not based on the price and quality. If we become able to set a good price by following a good pricing process then we can get the attention of the customers.

5. Cost Recovery: The pricing process plays a role in the recovery of the cost. It helps to cover the production, distribution and marketing costs. Along with the recovery of cost it provides a reasonable profit margin.

6. Demand Management: The pricing process also influences the demand for a product. It helps the businesses to manage the inventory. By abusing the demand the business can optimize the efficiency of the supply chain.

7. Adaptability: The pricing process allows businesses to respond according to the market changes. With the help of this the business can manage the variances in the preferences of the customer. The pricing process also helps to analyze the change in the economic conditions or competitor actions.

On the whole the pricing process is a strategic tool. It balances the business goals with market dynamics to achieve sustainable growth and customer satisfaction.

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What aspects should be considered when establishing the price of a product or service?

Price is the key aspect for any product to be considered as a trending and hot products. We know that those products which have low price than other competitors with no compromise on quality rank on top of the market. And the reasonable price attracts the buyers. And ultimately when that product is sold in huge quantity it enables to generate good returns.

Image by Anja from Pixabay

So while determining the price of any product or service we should be very sensitive and careful because it is the factor which will drive the market. Here are some important aspects which should be considered while the determination of the price for a product or a service which will ensure the profitability and competitiveness in the market:

1. Cost of Production

• Direct costs: Raw materials, labor, manufacturing costs.
• Indirect costs: Overheads, utilities, distribution.
• We should ensure the coverage for all the costs with the involvement of profit.

2. Market Demand

• We should analyze the customer demand for the product or service.
• Assessment of price sensitivity for the target audience.
• Identification of the trends or seasonality impacting demand.

3. Value Perception

• We should assess how customers get the value of the product by comparing it with other products offered by the competitors.
• Price in accordance with quality, brand reputation and unique features offered.

4. Competitive Pricing

• We should research the pricing strategy of competitors in the market. This aspect gives us a wide idea about the price determination by the judgement of the market sentiment.

5. Target Audience

• Identification of the economic status, preferences and purchasing power of the target customers.
• Identification of whether the product addresses the premium or the budget market segment.

6. Business Objectives

• We should align pricing with long term objectives such as for the profit maximization, market penetration and brand loyalty.
• Promotion pricing or discounts can be used for specific tasks such as for increasing the sales or clearing the inventory of an old or new version of a product.

7. Legal and Ethical Considerations

• The most important aspect is the price should be legal and ethical. It should comply with all pricing related laws.
• Be ethical in pricing so as not to take advantage of customers.

8. External Factors

• We should consider economic conditions such as inflation or recession. They can directly influence price.
• We should keep in mind the currency exchange rate for foreign markets. Other issues such as taxes and tariffs are also included.

9. Psychological Pricing

• We can set charming prices such as $9.99 vs. $10 and other techniques that take advantage of consumer psychological effects.
• We can implement bundle offers or tiered pricing to increase perceived value.

10. Distribution Channels

• We should add costs from intermediaries such as retailers or distributors.
• Consider the differences in costs for online versus physical sales channels.

Balancing these elements ensures the price is competitive but attractive for the customers and meeting business objectives.

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Provide examples of businesses that fit the pricing methods explained in class, stating your reasons.

Image by rawpixel from Pixabay

In the lecture we have discussed these pricing methods:

• Cost Based Pricing Method
• Demand Based Pricing Method
• Competition Based Pricing Method

So according to these pricing methods here are examples of businesses that align with each pricing method along with justifications:

1. Cost Based Pricing Method

Examples:

• Manufacturing Companies such as Toyota

  • Reason: Toyota calculates the cost of the materials, labor and overhead to produce a car. Then they add a profit margin in the final price.
  • Manufacturing of the automobiles involves high production costs. They need accurate calculation to ensure the profitability.

• Food Production such as Nestle

  • Reason: Nestle determines the cost of raw ingredients and production. They also determine the cost of packaging for the products like chocolate bars. Then they set the price by adding a standard profit margin.
  • This ensures the consistent pricing across products while covering all the costs.

• Construction Companies such as Bechtel

  • Reason: Construction firms calculate project costs such as materials, labor and machinery. Then they include a margin for profit to determine the pricing for the large scale projects.

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2. Demand Based Pricing Method

Examples:

• Airlines such as Delta Air Lines

  • Reason: They set the price of tickets according to the demand, time of reservation and seat availability when the holiday or peak seasons are at hand.

• Hospitality Industry such as Marriott Hotels

  • Reason: The prices of the hotels fluctuate based on occupancy rates, seasons and major local events. Prices are higher during high demand periods like holidays or conferences.

• Event Ticketing such as Ticketmaster

  • Reason: Concert and sports event tickets are priced dynamically. Their prices increase as the demand rises for the popular events.

• Ride Sharing Services such as Uber

  • Reason: Use surge pricing, increasing fares during peak hours or bad weather when demand for rides is high.

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3. Competition Based Pricing Method

Examples:

• Retail Chains such as Walmart

  • Reason: Walmart closely monitors the prices of the competitors. After monitoring it sets low prices to attract the budget conscious customers.

• Tech Industry such as AMD vs. Intel

  • Reason: AMD and Intel set prices for their processors by benchmarking against the offers of other competitors in the tech market for the processors.

• Supermarkets such as Aldi

  • Reason: Aldi analyze the local market prices. Then it sets competitive prices.In this way it provides cost effective options to the customers.

• Fast Food Chains such as McDonald's

  • Reason: McDonald’s also monitors the prices offered by other competitors such as Burger King or Wendy's. Then it adjust the prices on the menu. In this way it competes in the market by setting competitive prices.

These examples show how pricing methods vary based on their goals, the customer behavior and the market competition.

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Steemians Company Investment and Pricing

Image by Robert Owen-Wahl from Pixabay

1. What should be the percentage of profit that should be added to a total unit production cost of $25.00 to achieve the desired profitability?

As mentioned in the condition of the question we need to generate 20% return on the investment.

In order to achieve a 20% return on the investment of $130,000 the company must generate a profit of:

Desired Profit=130,000×0.20=26,000

With an expected sales volume of 21,000 units the profit required per unit is:

Profit Per Unit = Total Profit / Number of Units
Profit Per Unit = 26,000 / 21,000 = 1.24

The profit percentage added to the production cost of $25.00 is calculated as:

Profit Percentage = ( Unit Production Cost/Profit per unit ) × 100 = ( 1.24/25 ) × 100 ≈ 4.96%

The company needs to add approximately 4.96% to the total unit production cost to achieve the desired profitability.

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2. What price must we enter the domestic market?

The selling price of the product should accommodate the production cost and the profit per unit. The details aren't given below :

• The unit production cost is at: $25.00.
• Desired Profit per Unit is at: $1.24

The selling price is at:
Price = Unit Production Cost + Profit per Unit = 25.00 + 1.24 = 26.24

The company should enter the domestic market with a price of $26.24 per unit to meet its profitability target.

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3. If the competition has a price of $28.00 for a product with similar characteristics, would it be possible to compete?

The price of the competitor is $28.00 and the steemians company calculated price is $26.24. The price calculated by the steemians company is less than the competitor price by $1.76

As the price of the steemians company not I my ensures the profitability but it also undercuts the competition. It has a clear and wonderful pricing advantage. This low price can attract the cost conscious customers easily. In this way the company can easily compete with it's competitor and drive the market by attracting the customers.

So it is possible to be competitive. The product price of steemians company $26.24 is below the price of the competitor which is $28.00. So the price set by the steemians company is enabling a competitive advantage but still it holds the desired profit target of the company.

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