The document discusses pricing and costing strategies for Shwe Shwe products. It analyzes the current cost-based pricing model and identifies different variable and fixed costs. It then proposes adopting a new pricing model that calculates overhead costs based on average monthly production and accounts for three year inflation. The new pricing model results in price increases of 33-40% for products while still being competitive. The document also discusses other pricing strategies and objectives to pursue with an investment of 1 million Rands over three years.

1. PRICING AND
COSTING
BY MARIA, CHRISTIAN AND HARSH

2. FLOW OF PRESENTATION
1. Current Pricing Strategy
2. Different Costs
3. Calculations
4. Cost Based Pricing Solution
5. Other Pricing Strategies
6. 1 million Rands
7. Questions

3. CURRENT PRODUCT & PRICES
• Key Rings – R 25
• Midi Poppies – R 60
• Maxi Poppies - R 115

4. WHAT IS THE CURRENT PRICING
MODEL?
• Cost Based Pricing
• Example Midi dolls – R 60 (wholesale price) you bought them for 90
• How this price is decided
• R 9 for material + R 25.5 labour + 30% Overhead + 33 % Mark Up =
R 60
• So the cost pricing is dependent on three components – fixed costs
(overheads) + Variable Cost (material + Labour) + Mark up (profit)
• According to this model Shwe-Shwe should be profitable ?

5. VARIABLE COSTS
• Materials
• Labor Charges
• Easy to Calculate?
• Increase in material costs
• Inflation
• So do we account for inflation every year and keep
changing the price?

6. FIXED COST
• Very important to cover all the fixed costs example water,
electricity, own salary, insurance, telephone, etc.
• Division of Fixed cost = X Rands
• Say production = 500 Midis

7. FIXED COSTS
• Therefore Overhead per Midi = X/500 Rands (which we
assume is 30% overhead cost)
• Another month production = 300 Midis
• Therefore only 60 % of the overhead will be covered ( 300
* X/500)
• So the overhead needs to be distributed among lowest
production of poppies

8. MARK UP
• How should mark up be calculated?
• Amount of profit which Shwe-Shwe wants to invest
• Profit = Pay-back + Retention
• Therefore, Shwe-Shwe needs to decide how much money it
wants to invest in the business without rocketing the selling
price

9. WHAT ARE THE COSTS
According to the financials and information given by Wandile :
Variable costs Maxi doll Midi doll Key ring
Labor costs 36.5 25.5 11.2
Material 32.5 9 4
Total 69 34.5 15.2

10. WHAT ARE THE COSTS
According to the financials and information given by Wandile :
2008 2009 2010 2011
Operating
18'199 61'083 49'392 73'356
expenses:
Bank Charges 2'939 3'624 3'811 5'032
Accounting Fees 0 0 3'990 16'405
Insurance 0 0 3'993 7'578
Telephone and Fax 0 0 6'253 3'348
Computer Expenses 0 0 0 0
Donations 5'000 50'000 17'500 0
General Expenses 2'731 0 13'400 38'307
Travel - Local 7'529 7'459 445 2'686

11. WHAT ARE THE COSTS
Our assumptions :
2010 2011 2012
Operating Operating
49'392 73'356
expenses: expenses: 101'500
Bank Charges 3'811 5'032 Bank Charges 5'000
Accounting Fees 3'990 16'405 Accounting Fees 16'000
Insurance 3'993 7'578 Insurance 7'500
Telephone and Fax 6'253 3'348 Telephone and Fax 5'000
Computer Expenses 0 0 Salary Wandile 36'000
Donations 17'500 0 Electricity + water 9'000
General Expenses 13'400 38'307 Internet 5'000
Travel - Local 445 2'686 Transports 15'000
Travel - Local 3'000

12. HOW TO FIND THE RIGHT PRICE
• According to Wandile : bad month 200 items sold, good month 500-800 items sold
• Calculation of the overhead : conservative approach to avoid under allocation of the
costs. We choose 350 items sold per month, 4200 per year
• Revenue projections are: Key rings 2.5%, Maxi dolls 20% and Midi dolls 65%
• Formula : 101’500/4’200/(69*20%+34.5*65%+15.2*3%)=65% overhead
• Add inflation of 6% over 3 years, this is about 20% price increase at the end of the 3 rd
year, average during the 3 years is 9%
• Markup: 30%, includes variable salary for Wandile, profits to finance growth, money
going back to stakeholders

13. HOW TO FIND THE RIGHT PRICE
Variable costs Maxi doll Midi doll Key rings
Labor costs 36.5 25.5 11.2
Material 32.5 9 4
Total 69 34.5 15.2
Overhead 65% 113.85 56.93 25.08
3 year inflation 9% 124.10 62.05 25.08
Markup 30% 161.33 80.66 35.54
Old prices 115 60 25
New Prices 160 80 35
Price increase 39% 33% 40%

14. PRICING MODEL

15. PRICING OBJECTIVES
Competitive Profit
Survival
Product quality Pricing Return on
investment
Objectives
Status quo
Market Share
Cash Flow

16. PRICING MODEL
Price objective: profits
Type of product: toy / souvenir / decoration
Target market: middle/upper class tourists, mostly
women 25+ years old and corporates

17. PRICING BASIS
Competition
SA MARKET
Customer Cost

18. WOO-MEN
PRICING BASIS 200R
Competition
EUROPEAN
MARKET
• Market
• Demand
• Willingness to
pay
Customer Cost

19. PRICING STRATEGIES
Differential pricing: different prices to different buyers
for the same product (European market)
New markets: price skimming (New markets)
Promotional pricing: special event pricing (South
Africa)

20. 1 MILLION RAND FOR 3 YEARS
• Objective: Increasing demand and capacity enhancement
• Per year approx.:
• 50 000 Market & exhibition stalls
• 20 000 More in accounting services
• 25 000 Increasing corporate sales
• 85 000 Marketing & Sales Executive
• 50 000 Print media publicity
• 20 000 Online Sales
• 100 000 Capacity enhancement

21. Thank you!
Questions?