Pricing
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. Delivery costs, such as mailing or freight costs, must also be included in the total price.
The sales and unit price, such as the price per kilogram, litre or metre, of the goods offered at the point of retail sale and in the display window accompanying it as well as on websites, must be indicated. 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.
Discount marketing is permitted as long as it is neither false nor misleading. The image or general impression given by an advertisement aimed at consumers must correspond to reality.
When a product is marketed at a discount or reduced price, the lowest price at which the product has been marketed during the 30 days preceding the price reduction must also be stated in the marketing.
The price of a product may not be listed as reduced if the price is not actually reduced and the price benefit received by the consumer is not real.
If the discount sale does not apply to the entire range of the store, clearly indicate the products or product groups that are actually included in the sale.
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
- quantity
- time
- pick-up
- advance order
- centralisation.
Calculate in advance how much your sales must increase to make the discount sale profitable.