What is pricing policy?
Pricing is a pricing strategy. It is influenced by a number of factors:
uniqueness of the product, its quality, level of demand and competition;
average market prices;
target group of customers;
long-term and short-term goals of your company.
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Types of pricing policy
The basis is the average market value for a similar product / service. Ideal for small companies operating in a highly competitive environment. But if you focus on quality and exclusivity, this model is not profitable, since the margin is minimal
Price depends on demand. A vivid example is restaurants that sell lunch cheaper in the morning and afternoon.
“Costs plus profit”
This pricing policy is suitable for non-competitive markets and monopolistic companies.
When forming the price, the psychology of the consumer is taken into account. Luxury shops and beauty salons, manufacturers of premium goods work on this principle. That is, the price is too high, similar goods can be bought cheaper, the buyer pays for “exclusivity”, the opportunity to feel like a VIP person
Maximum Price Drop
This tactic is temporary. The goal is to gain maximum market share, sell goods from stock, and increase sales. It is important to calculate how much this will increase momentum and what will be the profit from it.
manufacturer recommended prices;
prices tied to the purchase price;
prepayment system (subscriptions, pre-orders for new products, etc.);
co-payment system (for example, extra charge for weekend delivery).
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Stages of formation of the pricing policy of the enterprise + example
The process takes place in several stages.
Stage 1. Setting pricing goals
When forming the price, consider strategic, tactical and operational goals.
Opposition to competitors
Market launch of a new product
Short-term profit maximization
Market share leadership
Short-term sales maximization
Example. The owner of a chain of stores sets a strategic goal – to become a leader in market share. This goal is being transformed into a tactical goal – to counteract competitors, to make their network recognizable (within the framework of a country, region, city). Based on this, we select operational goals: for example, to maximize sales, the seller sets the minimum price at which the network will break even.
Stage 2. Analysis of conditions
At this stage, you need to evaluate supply and demand in the market, find out the price lists of competitors. It is also important to correctly evaluate the composition and volume of own costs, to calculate how they will change if sales increase / decrease.
Step 3. Method Definition
Based on the data received, the manager selects the type of pricing policy of the enterprise.
See also: Taxation modes 2020 in one table
Stage 4. Setting the final price
Based on the selected method, the company calculates the total cost for each product item. In doing so, consider all related market factors. For example, many enterprises use the principle of price diversification – separate prices for wholesale and retail customers, or a higher mark-up on new products.
Approve the pricing rules documented and appoint the person responsible for setting selling prices.
Review selling prices every month, and counterparty rates once a quarter. Be sure to keep a history of changes.
The final price after the discount should not fall below the breakeven level. But in exceptional cases, companies sell at a loss if in return they receive long-term cooperation with a client.
Make profitability reports separately for each product, client, transaction.
Track the effect of marketing campaigns on lower prices.
If the supplier has changed the price list, it is necessary to update all selling prices for products from this counterparty (including warehouse stocks).
If you have a seasonal product, change the margin level depending on demand.
Motivate the sales team to sell the goods at the maximum price. The easiest way is to link the percentage of premium to the price.
Sell the product not at a price, but at a value to the buyer.
If there is a shortage in the market, raise the price based on the level of deficit and your stock balances.