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Pricing of goods is difficult. No single determinant magic formula exists that will decide the best price for one?s product. There is no simple strategy but one can take certain measures to make more effective pricing policies. It is difficult to be certain about pricing decisions, one can only rely on ones own judgment. But even while doing so decisions are never quite satisfactory.
The price determination of goods or services is one of the most vital ones in business. The price of products has to be done in such a way that the intended customers are willing to pay that amount and also one that generates profit for the company or the business won?t last long.
There are several scientific and non scientific approaches to pricing. Presented below is a framework for making pricing decisions that takes into account your costs, the effects of competition and the customer's perception of value.
Pricing policies are sometimes unnoticed as part of marketing .They can have substantial effect on profit, so should be given the same amount of thought as promotion and advertising tactics. Variation in price can considerably change both gross margins and sales volume. This leads to indirect effects on other expenses by reducing storage costs, for instance, or creating opportunities for volume discounts with suppliers.
Your pricing strategy might take into account discount offers to consumers who offer you a business advantage. One may offer cash discounts to customers who pay without delay. This system thus rewards those who help one?s company maintain a constant, positive cash flow and reduce credit-collection costs.
Quantity discounts for large orders makes economic sense when the cost-per-unit to sell or deliver a product reduces as the quantity increases. A caterer, for instance, may fill an order for 12 dozen cupcakes for one customer at 10 cents each, while cupcakes sitting in the bakery display rack may be sold to several customers throughout the day for 20 cents each.
This is done because there is the probability that some of the cupcakes won't sell has to be considered. Costs are also associated with keeping the store open for random customers' convenience. There are costs associated with having the store open for random customers' convenience.
Seasonal discounts actually reward customers who essentially assist a company in balancing its cash flow and in meeting production demands. Trade-in allowances for returned old goods that one may either re-use or re-sell for a profit benefits both a company and consumers.
Promotional allowances frequently make economic sense. For instance, if your product is used in ad campaigns or in promotional activities by a retail chain that also sells your product it ends up giving leverage to your marketing efforts . If this is the case, you might choose to discount your price to the retail chain that does so.