BLOG POST 8: PRICING (part one)

Hello! I am getting close to finishing up this blog! After this post I will only have two more left!
Today we will start talking about pricing products.

what is price?

What do you think price is? Price is the money or other considerations exchanged for the ownership or use of a product or service. To a consumer, price is just the amount you pay for a product. But what goes into coming up with the amount thats shown on the price tag?

Final Price = List Price - (Incentives + Allowances) + Extra Fees

Using this equation a company can easily determine the final price of a product. Depending on the product, the name of the price can change. 

value

Value is the ratio of perceived benefits to price. How is value different than price? Value is simply what you are willing to pay for a product, where as price is the amount of money a company is going to make you pay if you want to acquire the product. Most of the time if you think the price is more than what the product is worth, you will not purchase the product. For this reason, value is directly related to price. 

Value-pricing is the practice of simultaneously increasing product and service benefits while maintaining or decreasing price.

Value = Perceived benefits / Price

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profit

Pricing becomes really important when it comes to how much profit you'll be making because pricing has a direct effect on a company's profits. 

The profit equation is:

Profit = Total Revenue - Total Cost

          = (Unit Price x Quantity Sold) - (Fixed Cost + Variable Cost)

There are 3 different objectives that relate to a firm's profit. They are 1) managing for long-run profits, 2) maximizing current profits, and 3) target return. 

1) managing for long-run profits

In this objective, companies give up immediate profit by developing quality products to penetrate competitive markets over the long term. Products are priced low compared to their cost to develop, but the firm expects to make more profits later because it has a high market share. 

2) maximizing current profits

This objective is common in many firms because the targets can be set and performance can be measured quickly. 

3) target return

This objective happens when a firm sets a profit goal for themselves, meaning they set an amount they would like to have as profits at the end of a period and try to reach that goal.

Part 2 coming soon..!