The Business Plan Proposed Pricing Proposed Pricing Section

The Business Plan Proposed Pricing

Proposed Pricing Section Intended to inform the reader of the pricing strategies & policies utilized in your business: § Should discuss: § l l l Pricing Strategies Mark-up Percentages Pricing Policies/Techniques

Factors Affecting Prices § Demand l § Supply l l § If supply is limited you can charge more. Many similar products available, you might have to lower pricing Competition l § The greater the demand for your product, the more you can charge customers. How much is the competition charging for similar products? Costs and Expenses l Higher costs = Higher Prices

Pricing Strategies Competition-Based § Demand-Based § Cost-Based §

Competition-Based Pricing Strategy that bases selling price on the prices offered by the competition. § Often used with service businesses, where there a few major competitors. § § Products could… l l Be priced slightly below competitors to gain customers. Be priced slightly higher than competition to give the image of a high quality product.

Demand-Based Pricing Strategy of setting your prices based on the current demand for the product. § Often used when there is little to no competition. § § Example: l l When Ipod first released the Nano the cost was $400. 00 because their was no competition & demand was high. Now that competition has caught up the demand has decrease and the price is now down to $200. 00

Cost-Based Pricing § Refers to adding a “Mark-Up” to the cost of the product prior to selling the item. l l Most commonly used method of pricing Used often in retail businesses

Cost-Based Pricing § Markup: The percentage of the manufacturing price added to a product prior to the sale of that product l Manufacturer Cost + Markup = Retail Price $5. 00 x 100% = $5. 00 + Cost = $10. 00 What it costs the store The % you add to make $ Retail Price

Cost-Based Pricing § § If you purchased a product for $6. 00 and wanted to add a 50% mark-up to all products, what would be the selling price? $6. 00 x 50% Mark-up ($3. 00) = $9. 00

Cost-Based Pricing § If you choose this type of pricing you simply need to tell me the percentage mark-up you will be using. l Most businesses markup product between 25% to 100% depending on the item.

Pricing Techniques § Psychological Pricing l “Odd Pricing” • $9. 99 • Discount l “Even Pricing” • $20. 00 • Prestige

Questions to Ask Before Setting Your Prices? What motivates your customer to buy? § How much are customers be willing & able to pay? § What image do I wish to represent with the pricing of my products? §

Section Requirements § One to two paragraphs describing the following: § Pricing Strategy l l Explanation of the strategy you chose and why. Recommendations: • Most people will use either Cost-Based (Selling products) or Competition-Based (Selling services) • If you choose cost-based be sure to include the markup percentage

Section Requirements § Pricing Technique l l Odd (Cheap) vs. Even (Prestigious) Justify why you choose the technique that you did. • What type of image are you trying to portray?