What determines the price
Mafpels trading blog
As written in economics textbooks, price is the amount of money for which an economic good is sold and bought. It is very important to set the price in such a way that it is not too high or too low. The managers of Mafpels company briefly reviewed all the stages of pricing, as well as common mistakes.
Mistakes of beginners
Beginners in trade make many mistakes in the matter of price determination, which not only affect revenue and turnover, but can also lead to negative consequences for the business. Let's consider the most common ones.
Lowest prices. Many new entrepreneurs think: if the price will be lower than that of competitors, it means that all customers will run to them. However, if the price will be lower than other sellers, accordingly, your income will also be lower. As a result, you will not have money for advertising and good sellers of your goods - they will not work for minimum wage. You should also remember that the cheapest prices buy, as a rule, the most insolvent segments of the population. Therefore, in most cases it is better to stick to the average market price.
Overestimated margin. Newcomers often put a very high margin in their goods, for example, 300%. However, they do not take into account that there are not even hundreds, but thousands of competitors on the market. If the price is highly inflated, sales will be insignificant.
Breakeven point. Usually, entrepreneurs monitor competitors and sell the same goods at an average price, said the specialists of Mafpels management. On the one hand, there will be sales, but you can also go into the minus: not enough money to pay rent, salaries and purchase a new batch of goods. And that's because, depending on the product group, you must be sure to determine your break-even point.
Lowest prices. Many new entrepreneurs think: if the price will be lower than that of competitors, it means that all customers will run to them. However, if the price will be lower than other sellers, accordingly, your income will also be lower. As a result, you will not have money for advertising and good sellers of your goods - they will not work for minimum wage. You should also remember that the cheapest prices buy, as a rule, the most insolvent segments of the population. Therefore, in most cases it is better to stick to the average market price.
Overestimated margin. Newcomers often put a very high margin in their goods, for example, 300%. However, they do not take into account that there are not even hundreds, but thousands of competitors on the market. If the price is highly inflated, sales will be insignificant.
Breakeven point. Usually, entrepreneurs monitor competitors and sell the same goods at an average price, said the specialists of Mafpels management. On the one hand, there will be sales, but you can also go into the minus: not enough money to pay rent, salaries and purchase a new batch of goods. And that's because, depending on the product group, you must be sure to determine your break-even point.
Determining the price is one of the most difficult tasks facing any entrepreneur. After all, it is the price that predetermines the success of the enterprise, in particular sales volumes and profits.
1. Setting the objectives of pricing. At this stage, the question should be answered: ‘What do you want to achieve with the price policy for your goods?’. Possible answers:
2. Determining the demand for the firm's goods. You need to answer the question, ‘How many goods can be sold at different price levels?’.
3. Estimating costs. You must determine the reserve for price reductions under all market situations.
4. Analysing the prices and goods of competitors. It is necessary to identify the so-called indifference price, i.e. the price at which a person does not care whose goods to buy: from your company or from competitors. After that it is necessary to decide at the expense of what you can overcome this indifference and achieve that they buy your product.
5. Choice of pricing method. The most reliable method of pricing is the cost-marketing method, because it combines cost analysis and price formation, taking into account marketing tactics.
6. Setting the final price.
At this stage, Mafpels Cyprus experts recommend:
1. Setting the objectives of pricing. At this stage, the question should be answered: ‘What do you want to achieve with the price policy for your goods?’. Possible answers:
- Increasing sales;
- gaining a reputation;
- capture as much market share as possible;
- making the most profit in the shortest possible time.
2. Determining the demand for the firm's goods. You need to answer the question, ‘How many goods can be sold at different price levels?’.
3. Estimating costs. You must determine the reserve for price reductions under all market situations.
4. Analysing the prices and goods of competitors. It is necessary to identify the so-called indifference price, i.e. the price at which a person does not care whose goods to buy: from your company or from competitors. After that it is necessary to decide at the expense of what you can overcome this indifference and achieve that they buy your product.
5. Choice of pricing method. The most reliable method of pricing is the cost-marketing method, because it combines cost analysis and price formation, taking into account marketing tactics.
6. Setting the final price.
At this stage, Mafpels Cyprus experts recommend:
- create your own discount system for customers;
- define a mechanism for adjusting prices in the future, taking into account the stages of life of the product, inflation and negative market situations.
Stages of pricing
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