3. Price is a key marketing tool
− It is the odd one out in the marketing mix
− It’s a revenue earner rather than a cost
− Setting prices is therefore an essential skill
−Too higher price might lead to lost sales
−Too lower price losing margin
− Price however should not be set in isolation
− It should be set with other aspects of the marketing mix to achieve overall superior
customer value.
4. Cost and value
− Knowing the difference between cost and value is important
−The cost of your product or service is the amount you spend to produce or deliver
it
−The price is your financial reward for providing the product or service
−The value is what your customers believe the product or service is worth.
8. How have you or how
could you set the
prices for your
products / services?
9. Pricing Checklist
Know your real costs
for each product /
service
Work out the
minimum at which its
worth selling at all
Find out from your
customers what each
product or service is
worth to them
Check your
competitors prices
If their price is lower
than your worth
selling at price
THINK AGAIN
Be prepared to make
range and pricing
changes
Keep checking that
you price is right
11. • Cost Orientated Pricing
− Full cost pricing
−A way of including all the costs that are directly and
indirectly associated with the product or service
−Increase cost with decreasing sales!
−Sales are estimated before a price is set
−Focuses on internal costs rather than customers and
customer value
−It does however give an indication to the minimum cost to
make a profit
12. Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40
13. What are your direct costs?
Labour?
Materials?
Sub-contract costs?
14. Direct Costs
(Per item) Cost of materials
Direct wages
Subcontract charges
Packaging and
carriage
Total Direct Costs
15. What are your fixed costs?
Rent?
Salaries?
Marketing?
16. Overheads
(for 12 months) Staff Salaries / wages
Business Rent 0.00
Business Rates 0.00
Water Rates 0.00
Light / Heat / Power 0.00
Repairs and Renewals 0.00
Business Insurance 0.00
Travel and Vehicle
costs 0.00
Phone and Postage 0.00
Printing and
Stationery 0.00
Marketing 0.00
Professional Fees 0.00
General Expenditure 0.00
Total Overheads 0.00
17. Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40
18. Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40
Sales forecasting next
19. Sales forecasting
• Your sales forecast should be based upon any historical sales, your marketing
strategic and your market research.
• It is a month-by-month prediction of the level of sales you expect to achieve.
• Every year is different, so you need to consider any changing circumstances that
could significantly affect your sales
• These factors - known as the sales forecast assumptions - form the basis of your
forecast.
• You may wish to do two
1. A best guess – what you really expect
2. A worst case – your lowest estimate no matter what
20. Typical examples of assumptions:
− The market you sell into will grow by 2 per cent.
− Your market share will shrink by 2 per cent, due to the success of a competitor.
− Seasonality – how sales will change depending on the time of year
− You will spend 50 per cent less on advertising, which will reduce the number of
enquiries from potential customers.
− You are launching a range of new products. Sales will be small this year and costs will
outweigh profits, but in future years you will reap the benefits.
− You have new products that have the potential to increase sales rapidly.
21. How to forecast sales
• Use your previous experience
− If you don’t have personal experience seek those you might have, friends, past colleagues,
advisors
• Use past results as a guide
− If not your own look for past results from other similar companies
• Look for specific drivers
− E.g. if you are delivering services how many days can you actually earn fees, ensure you
account for non fee earning days Use market data
− If you are a restaurant think about how many tables you have and how often you can turn
them
• Use market data
22. Market size
• Total available market
• This is the entire universe that could ever buy
your product, for your niche – anywhere
Addressable market
This is revenue represented by the market
segments that you intend to sell and service in
the time covered by your plan available money
23. Market size
A B C
Market
Size
Number of
customers
Average
transaction size
Number of
transactions per
customer per
year
24. Sales Forecast
MONTH SALES a SALES
b
SALES
c
TOTAL
MONTH
MONTH CUMULATIVE
MONTHLY
1
2
3
4
5
6
7
8
9
10
11
12
YEAR
26. You should now have enough
information to complete your
Profit and Loss forecast
27. Annual
Sales Income
Sales a £0.00
Sales b £0.00
Sales c £0.00
Sales d
Total Sales Income £0.00
Direct Costs
Cost of materials £0.00
Direct wages
Subcontract charges
Packaging and carriage
Total Direct Costs £0.00
Gross Profit £0.00
% GP Margin
Overheads
Staff Salaries / wages
Business Rent 0.00
Business Rates 0.00
Water Rates 0.00
Light / Heat / Power 0.00
Repairs and Renewals 0.00
Business Insurance 0.00
Travel and Vehicle costs 0.00
Phone and Postage 0.00
Printing and Stationery 0.00
Marketing 0.00
Professional Fees 0.00
General Expenditure 0.00
Total Overheads 0.00
Net Profit / Loss £0.00
Profit and loss
28. Now that we have our costs and
our sales – what are your costs per
unit?
29. Back to pricing
Year 1
Direct costs £2
Fixed costs £200,000
Expected Sales 100,000
Cost per unit
Direct costs £2
Fixed costs £2
Full costs £4
Mark Up 10%
Price plus profit £4.40
31. Pricing Checklist
Know your real costs
for each product /
service
Work out the
minimum at which its
worth selling at all
Find out from your
customers what each
product or service is
worth to them
Check your
competitors prices
If their price is lower
than your worth
selling at price
THINK AGAIN
Be prepared to make
range and pricing
changes
Keep checking that
you price is right
32. Pricing Checklist
Know your real costs
for each product /
service
Work out the
minimum at which its
worth selling at all
Find out from your
customers what each
product or service is
worth to them
Check your
competitors prices
If their price is lower
than your worth
selling at price
THINK AGAIN
Be prepared to make
range and pricing
changes
Keep checking that
you price is right
33. Competitor orientated pricing
• Competition
− At the very least you should know who your competitors are and what they charge
Immediate competitors,
e.g. Blockbusters
Technically similar products
Secondary competitors, eg.
Lovefilm / Netflix
Different products solving
the same problem in a
different way
Tertiary competitors e.g. Sky
Movies
Different products solving or
eliminating the problem in a
different way
34. How to find out your competitors prices
• Simple google search
• Government contracts
• Competitor websites
• Primary research
−Secret customer
−Student project
35. Can you accurately create a
competitor based price for your
new product / service?
37. Pros and cons of competitor pricing
•Pros
− Its fairly simple – in a B2C case
− Its low risk
− It can be accurate
•Cons
− Missed opportunities
− Following not leading
− Not long term
38. Pricing new products or services
High
High
Low
Low
Promotion
Price
Rapid Skimming
Rapid
Penetration
Slow Skimming
Slow
Penetration
Premium products
Gradual entry
Premium products
Quick entry
39. What has your organisation used
in the past?
What will you use now?
41. Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10Month 11 Month 12
Income
Sales a
Sales b
Total Income £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Expenditure
Materials
Subcontract Charges
Packaging and Carriage
Wages
Business Rent
Business Rates
Water Rates
Light / Heat / Power
Repairs and Renewals
Business Insurance
Travel and Vehicle costs
Printing and Stationery
Marketing
Professional Fees
General Expenditure
Total Expenditure £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Monthly net inflow / outflow £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
Cumulative monthly flow £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00 £0.00
42. Pricing tip
Complicated price points and conditional
discounts lead to consumer confusion, anger
and loss of business.
If a prospect cannot understand your pricing
they will likely walk away.
Be simple and clear
43. High Price versus Low Price
High Price Segments Low Price Segments
Product provides high value Only feasible alternative to charge low –
customers are not cash, no differentiation
Customers have high ability to pay Requirement to achieve market presence or
domination
Consumer and bill payer are different Can afford to make money later
Lack of competition Can make money elsewhere
High pressure to buy There are barriers to market entry
44. Negotiating margins
− In some instances customers expect a price reduction
− Price paid is therefore very different from list price
− The difference can be accounted for by
−Order size
−Competitive discount
−Fast payment discount
−Promotional allowances
− Many organisations therefore build in a negotiating margin
45. • Technology allows for
• Dynamic pricing
• Easier and closely monitored promotional pricing campaigns
• Orange Wednesday, Pizza Express
• Loyalty cards / loyalty bonus
• Contactless payments / mobile payments
• Non technology based
• For example
• Promotional pricing
• Boots 3 for 2, Waterstones
• Psychological pricing
• Referral bonuses
• Subscriptions
Innovation in pricing
46. No matter what pricing tactic you use you
are establishing your basis of value to the
customer and your competitors.
The customer has to see the relative
value of the product or service and the
price needs to match that relative value.
You therefore need to make sure you are
not charging too much or indeed not
charging too little