How To Get The Right Price?

To effectively manage a business, its leader must have a clear understanding of what the price of goods and services is. It is important to understand in what cases to use a particular pricing method.

Before setting a new price, it is imperative to conduct a competitor price analysis to determine the right business goals, for example:

- CHANGE production rate;
- STIMULATE demand ;
- INCREASE sales.

If the company chooses the right pricing policy, then it will be as easy as possible to achieve this goal.

What is the difference between price and cost?

Price is the amount of money that the consumer will pay to the seller for a unit of a particular product. Some factors can influence the formation of this indicator:

- The level of solvency of potential consumers.
- Demand indicator for the last sales period.
- The degree of usefulness of the product.
- Consumer properties of the product.
- The costs that go into production, quality and volume.

Cost is the cost of production and subsequent sale, expressed in monetary terms. The cost indicator can be influenced by:

- DIRECT COSTS borne by the entrepreneur;
- OVERHEAD COSTS associated with production and sales.

Which pricing method should you choose?

Every entrepreneur chooses for himself a convenient method of calculating prices . In such a case, accuracy and a competent approach are important. The slightest oversight, an excessive increase in the cost of a specific product can negatively affect the reputation, reduce demand and lead to losses in the shortest possible time.

Costly Pricing Methods

They are based on criteria:

- full costs;
- direct costs;
- maximum allowable costs;
- break-even points;
- the degree of return on investment;
- markups to market prices.

The essence of technologies belonging to this category lies in the fact that the production manager must take into account all the costs associated with the production of goods or services.

In other words, the price will depend on:

- variable costs;
- fixed costs;
- and the profit that the company expects to receive.

The advantage is that the manufacturer always has an idea of ​​how much he spends and how much he receives. However, there are also downsides.

- When forming prices, they do not take into account the demand for the product and its competitiveness. This increases the likelihood that the manufactured products will not be in demand.

- The complexity of the technique, which is based on the cost of production. It is necessary to take into account absolutely all production and sales costs.

This is an excellent choice for setting prices for work or services to order.

Competitive Pricing Methods

In this case, prices can be formed using several methods.

- The leader's price is set.
- Following the sales leader.
- Application as a basis - the level of current prices.

Thus, the entrepreneur must take into account the solvency of consumers and what the competition is in this market segment. This is the best option for goods and services with elasticity of demand (a slight decrease in price leads to a noticeable increase in sales).

Customer-Centric Pricing Methods

Techniques for forming a price equivalent are presented in 2 types.

- Estimation of elastic demand.
- The degree of perceived value of the product.

The price is formed in accordance with:

- With the amount that a potential client is willing to spend to purchase a product;
- With product quality;
- With its consumer properties;
- With its packaging, etc.

In this situation, the law of demand is used. The cost can be set as a balance point between the supply of goods and services and their demand from consumers.

To work with this methodology and assess the need for a particular product, you need to have an understanding of the technology of customer orientation. For this:

- find out how much production can be sold;
- conduct sociological surveys;
- consult with partners or research competitors' sales to make their own forecast.

It is worth remembering that harsh experiments with value can negatively affect a company's reputation.

Parametric Pricing Methods

Parametric techniques are the methods on the basis of which pricing is calculated.

- Methodology for accounting for unit cost indicators.
- Point calculation method.
- Regression analysis.
- Aggregate analysis.

Parametric methods are used when choosing prices for goods and services that have similar characteristics and which can be called analogs. Thus, a parametric series will be compiled.

The use of such technology is possible for more experienced entrepreneurs who have a complete understanding of what products from the parametric range are. Units in this group have:

- a single satisfying need;
- identical physical and chemical properties;
- the same purpose.

For example, it can be machines from different manufacturers, differing in efficiency, configuration, polymeric materials that have the same purpose, but different chemical composition.

The formation of prices for new products that fall into a row occurs due to the procedure for adjusting the cost of similar basic products. In general, the final price will be calculated taking into account the parameters of the product, and not in accordance with consumer demand and other specific features.