It is important to have a pricing strategy that is tailored to your target market. There are various ways of setting prices as outlined in the following:
Using this strategy, a business first determines what level of demand there is for the product and then identifies the desired profit the business would like to make from the product. The price is calculated by dividing the total desired profit by the expected level of sales. Therefore, by meeting the level of expected sales, a certain amount of profit will be received.
In the situation where the business is in a competitive market, the business charges the average price of what its competitors are charging for a similar or the same product. This may be the case where there is only a small amount of competition and the product is a necessity. It is sometimes in a business's best interest to not compete by undercutting their competition.
4 P's of Marketing target return pricing
When it comes to determining a price for your products, it is important to ensure that you are able to cover all of the costs involved in bringing the product to the market whilst also leaving a margin from which to make a profit. It is also important to consider what your target market is and what they are prepared to spend.
The expenditures that do not change regardless of the business's volume of sales. These must be covered no matter what sales you achieve. Examples include rent, licence fees and interest to be paid on business debts..
These depend on the operational activities of the business. That is, as the volume of sales and production activities change, so does the level of costs. Examples include material costs that are inputs to the production process.
These depend on the operational activities of the business. That is, as the volume of sales and production activities change, so does the level of costs. Examples include material costs that are inputs to the production process.
Your pricing should reflect the levels of these costs and cover your expenses at the very least. In the initial stages of developing a business, profit levels may be low; however you should aim to increase the level of profit as your business grows.