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Pricing For Profit
A good pricing strategy will ensure that:
Profit objectives are sustained
Customers needs are met
Retain or increase market share
Maintain brand and reputation
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Pricing For Profit
A good practice pricing strategy is:
Not just a “set and forget” process.
Maximum profit from each sale & maintain
high customer satisfaction
Your pricing strategy will determine the fate of
your business
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Topics for today’s seminar
Why pricing is the most important “P’ in the
marketing mix.
How to set the right pricing in your business.
Pricing for improved profit and cashflow.
Avoiding the five most common mistakes in
pricing.
How to steer clear of price wars with competitors.
When to use discounting and its impact on profits.
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Pricing and the Marketing Mix
Your pricing strategy:
Must reflect supply and demand
Is only one part of the marketing mix
Aligns with market targeting and positioning
strategies
Will determine both revenue and buyer
behaviour
There is a very strong link between price and
perceived value for most customers.
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Pricing and the Marketing Mix
One of the most challenging marketing
activities
So many varying factors that affect pricing
decisions
Deciding your price points is more than adding
margins for profit on to costs
Setting your pricing strategy is an integral part
of your marketing strategy
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Price it right
How do you currently price your products or
services?
Cost of your goods, plus a %
What the customer is prepared to pay
What the competitor is charging
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Price it right
The four steps to an effective pricing strategy are:
1. How much does it cost you?
2. What will the customer pay?
3. Is there seasonal or a lifecycle to product or
service?
4. What are your competitors charging?
An effective pricing strategy takes a multifaceted
approach
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Price it right – the cost
Let’s look at the example on page 6 on how
to price your services.
Note down some direct costs associated
with providing your product or service on
page 6.
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Price it right – the customer
Price Quality
Service Value
Customer
Behaviour
What are the key areas of importance to your customers?
Note these down in the table on page 7
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Price it right – Seasonal or lifecycle
Seasonal Product
Competition
How long can you sell your product or service
at a premium?
Complete the table on page 8.
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Price it right – competitors pricing
Competitors
Pricing
Market
Research
Suppliers
Industry
Information
Differentiation
On page 9 note down potential market research you can
undertake to find out how your competitors set their prices.
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Pricing for improved profit and cashflow
Mark up
Gross Margin
Mark up
is the amount
you sell your
goods above
what it cost to
purchase or
manufacture
those goods.
Gross Margin
is the sales
dollars left after
subtracting the
cost of goods
sold from net
sales.
Let’s have a look at the example on page 11.
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Pricing for improved profit and cashflow
Mark up
Margin
Benchmarks
Industry
Information
Supplier
Mark up
Sometime suppliers recommended retail price which effectively means
there is a fixed mark up on those goods.
In this instance you need to ensure that your gross margin will cover all
your overheads at these fixed prices.
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Pricing for improved profit and cashflow
Volume vs Price
Gross Margin
Sales
High Margin
Low Volume
“Profitable”
High Margin
High Volume
“Growth”
Low Margin
Low Volume
“Lost Leader”
Low Margin
High Volume
“Strategic”
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Pricing for improved profit and cashflow
Mark up
Margin
Breakeven
Benchmarks
Industry
Information
Supplier
Mark up
Volume
vs
Price
Savings in
Cost of
producing
Promote
Value of
Offer
Let’s note down some measures you can
use to improve profitability in your pricing
on page 13.
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5 most common mistakes in pricing
1. Hidden costs
2. Mark-up vs margin
3. Follow the leader
4. Customer behaviour
5. Offering discounts
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Can be beneficial but know the impact
A word on Discounting
The Effect of Discounting
And your present Gross Margin (%) is .......
10% 15% 20% 25% 30% 35% 40%
If you cut your
prices by...
5% 100.0% 50.0% 33.3% 25.0% 20.0% 16.7% 14.3%
6% 150.0% 66.7% 42.9% 31.6% 25.0% 20.7% 17.6%
8% 400.0% 114.3% 66.7% 47.1% 36.4% 29.6% 25.0%
10% 200.0% 100.0% 66.7% 50.0% 40.0% 33.3%
12% 400.0% 150.0% 92.3% 66.7% 52.2% 42.9%
15% 300.0% 150.0% 100.0% 75.0% 60.0%
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Price sensitivity
Various price points
Differentiation
Exclusive offers
Focus on value
Consistent and flexible
Avoiding Price Wars
In the table on page 18 makes some notes on what
strategies you have or could do to avoid pricing wars.
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Today’ Top Tips
Pricing is an important part of the marketing mix
Understand your customer
Know your costs
Look at buying behaviours
Have a solid pricing strategy
Do the numbers!
For more help…check out
www.business.vic.gov.au
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List 3 actions you will follow
through with as a result of this
workshop
Then
List 3 things that you’ve learned
in this seminar
List 3 actions you will follow
through with as a result of this
seminar
List 3 things that you’ve learned in
this seminar
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Business mentors help you to identify a clear direction
for you and your business.
Business mentors can also advise you on how to:
conduct market research
work out your break-even point
price and/or cost your products or services
develop an effective marketing strategy
use other business management tools
To arrange a free mentoring session with a business mentor complete
the evaluation form and select FREE Mentoring Session on page 2. You
will then receive an email with details on claiming your free mentoring
session.
FREE mentoring session
