Determine a suitable price level for your company’s products in relation to competitive products. Make use of pricing methods in determining the unit prices for your products. When marketing your company’s products, indicate their prices in accordance with law and regulations. Comply with the pricing regulations also in discount sales and products on sale.
Decide which price level you would like for your company’s products in relation to competitive products.
If your company is about to launch a new kind of a product, you should consider a high price level (price skimming). There are also grounds for setting a high price when you wish to give an impression that your product’s quality is particularly high (premium pricing).
If you do not wish to compete with your price, you can select medium pricing (standard pricing). When you use this pricing strategy, the prices of your products follow the general price level of the industry. They may also conform to the prices of your biggest competitors.
If your company is introducing inexpensive mass products into the market, you should think about a low price level (penetration pricing). A low price will make customers buy your new product quickly.
A price lower than your competitors may also be useful if you wish to attract large sales volumes (volume pricing). However, this requires your unit costs to be lower than those of your competitors.
For example, you can use the following strategies in pricing your company’s products:
With market-based pricing, the price is based on price levels determined by the market and the competition. Reducing your target profit from the market price allows you to determine what the price of the product is for your company.
In variable cost pricing, you must reduce manufacturing and purchase costs from the price you have planned for the product. The result is the contribution margin. Sum up the contribution margin of all your products. If it is larger than your company’s wages, rents and other fixed costs, your company will make a profit.
In absorption pricing, you must first calculate the cost of the manufacture of the product for your company. Add a share of your company’s fixed costs, such as wages and rents, to the production price. Also add the profit you want and taxes. The result is the absolute minimum price of your product.
Whichever pricing strategy you are using, do not undercut the prices of your products.
The obligation to indicate price and the way to do it depend on the marketing tool and method of sales. It also matters whether you are selling goods or services. Rules may also differ depending of different goods and services. However, you should always indicate the price in a way that is clear, easy to understand, and leaves no room for misunderstanding.
When you market your product to consumers and indicate its price information, state its total price inclusive of tax. When you are marketing a specific good as a retailer, you must indicate the unit price in addition to the selling price; for instance, the price of the product per kilogram, litre or metre. Also add taxes and charges to the unit price, with the exception of any deposits.
Comply with the regulations on price indications even when giving a discount. For example, you can market a product category using starting prices, but only when these products are actually available. If only a few products with a starting price are available and you do not give information on the number of products available, the marketing process is misleading.
More information on indicating prices is available from the Finnish Competition and Consumer Authority, for example.
A discount is calculated on the price that you company has charged for the product at the same trading venue before the discount sale. State the reduced price clearly and unambiguously inclusive of tax. You do not have to indicate the normal price.
Discounts can be significant at times, for example 70 per cent. In this case, you must indicate to which products the large discounts apply and how many items are to be sold.
You should note that you may not use the word ‘discount’ if your company has not previously charged the full price for the product. If the product is brand new, you may organise a promotion instead of a discount sale.
A discount sale may last at most two months on end. They may cover at most a total of three months within the calendar year.
Determine the grounds for giving a discount. The most common discount types are based on
- advance order
Calculate in advance how much your sales must increase to make the discount sale profitable.
More information on discount sales is available from the Finnish Competition and Consumer Authority, for example.