Meanings of Right Price Part III
4. Which pricing strategy for the price calculation?
Different pricing strategies can be used for price calculation for different products. The price is classified in a lower, middle or upper price range. There are the following strategies:
High price strategy
The high price strategy will be used for products that have particular performance and / or quality advantages and a very good image on the market. The prices of the products are well above the average price on the market. Premium brands such as Chanel and Tesla use this strategy.
Medium price strategy
Products that are of average quality use this pricing strategy. This is often found with private label or non-exclusive branded items. It is often difficult for suppliers of these products because they are between the low-price and high-price suppliers. And so they are on the one hand under strong price pressure and on the other hand under high quality pressure.
Low price strategy
If the products only have the lowest quality level because the company wants to reduce and optimize costs as much as possible, the price is well below the market average. This is possible because large quantities of the product are produced and sold in order to secure market shares. In these cases, customers are particularly price-sensitive. If another company sells a similar product at a lower price, customers will buy from that company. An example of this are discounters such as Lidl or Kik.
If a product is offered at different prices – for example through discounts at certain times of the day or season – we speak of price differentiation. The price can also be varied for different groups of people (corporate or end customers), regions or in relation to the sales volume. The price for a subscription can be cheaper than if an individual order is placed every month.
5. Allow for discounts, rebates and discounts
According to HEALTHKNOWING.COM, price reductions are used for price differentiation. This includes discounts , bonuses and cash discounts .
The discount can be deducted directly from the sales price as an absolute amount or percentage and must also be taken into account as this in the price calculation. The discount can be granted for high purchase quantities, but also as a first-time discount to win new customers. Typically, the amount of the discount can be very different – from 5 percent to 50 percent.
The customer only receives the bonus retrospectively, for example when he has made a certain turnover and receives a loyalty bonus for it.
If the invoice is paid within a certain payment period, for example 14 days, the customer can be granted a cash discount. Usually this is 2 or 3 percent.
Important: Discounts, bonuses and cash discounts must be taken into account when calculating the price. If the discounts are not factored in, this would reduce the profit.
6. How to calculate the right price
Using our example from Karl, we want to show you how you can now calculate the product price.
Direct material costs € 230.00
overheads € 80.00 = material costs € 310.00
+ production costs € 90.00
overheads € 35.00 = production costs € 435.00
+ administration overheads € 50.00
+ sales overheads € 35.00
= cost 520 €
.00 + profit (50% surcharge) € 260.00
= subtotal (cash sale price) € 780.00
+ discount (2% surcharge) € 15.60
= subtotal (target sales price) € 795.60
+ discount (10% surcharge) €
79.56 = total (list sales price net) € 875.16
So we get a net sales price per shelf of 875.16 euros from the price calculation. The sales tax must be added to the sales price.
7. After the calculation is before the calculation
Even after you have calculated the price of your product, you should check that price regularly. In this way you can see whether the calculated price is still correct or whether you need to adjust it. To do this, ask yourself the following questions:
- Have you changed the prime costs?
- Have you been able to reduce your costs? Or did they go up?
- Have you taken all costs into account?
- Have you hired new staff?
- Did you sell more or less than planned?
- Do you need to lower or increase the discounts?
All of these questions will help you to keep checking your pricing and, if necessary, to change the price.