Marketing Price Pricing Strategies There are several schools

Marketing Price

Pricing Strategies There are several schools of thought when it comes to creating an effective pricing strategy that will attract and retain customers and create enough profitability to satisfy your business costs and personal efforts.

Pricing Strategies Entrepreneurs use the price received for products and services as revenue or cash flow to be used to pay for the cost of operation, production, and distribution costs

Calculations Total Revenue = Price of Each Unit x Quantity Sold Total Cost = Total Operation + Production + Distribution Costs Total Profit = Total Revenue - Total Cost Mark up = selling price - cost price Mark up % = (Selling Price - Cost Price) / Cost x 100

Types Pricing Strategies

Cost plus Pricing This practice follows a simple process for setting pricing. A mark up using either a dollar figure or percentage is added to the base or cost price of the product or service that will ensure an appropriate profit.

Competition Pricing The price of the product or service is set equal to or slightly below a competitor's price. This pricing strategy may increase market share, but it is important for entrepreneurs to be aware overall operating costs so that they do not set a price that will result in loss revenues.

Penetration Pricing This practice positions the price of a new product or service significantly below a competitor's price. This pricing allows the new business venture to win market share from the competition and also attract new customers. Selling large volumes at low prices can result in significant profits when implemented properly.

Price Skimming This is when there is no competition, a new product or service can enter the market with a high price. This situation may result in short-term profits, but these profits are sure to drop when aggressive competition moves in and challenges your pricing.

Psychological Pricing This practice sets prices to give the impression that they are less than they actually are. For example you might be pricing a product or service at $99. 99 instead of $100. 00 to leave the impression that it is less or under $100.

Loss-leader Pricing This strategy targets selected products or services known as loss leaders that are sold at cost or less than cost to attract customers who will then make other purchases which will compensate for the loss of profits on the loss leaders.

For Your Venture Decide which pricing strategy you are going to utilize Explain why you are using it Show a simple calculation of markup for products ADD THIS TO MARKETING SECTION OF VENTURE PLAN