PRICING TIP
By, Linda Olofsson
Everything today is dependent on price. Price regulates what we do, how we do things
and why we do them. Consumers react to price changes and choices; therefore it is important
to conjure the most appropriate price level since it has a great effect on their purchase
behaviour. I will be going through the factors of price setting, while analyzing the Donair and
Natural Soap market. There are a number of influential factors to consider when setting a
product price:
 Who are the consumers?
In order to set an appropriate price, it is imperative that you know who the consumers
are. What is the demographic? What is their income? In order to set your product price you
need to know your target market. For the Donair market, the consumers are people who want
a quick, cheap and relatively healthy meal. The Natural Soap consumers are those who have a
higher income, are very educated and are health conscious.
 What are the production costs?
It is important to know what the fixed and variable costs are in order to realize the total
revenue. Fixed costs are those costs that don’t change with the quantity of the product sold,
for example a manager’s salary. Variable costs, on the other hand, are those costs that change
with the quantity of the product sold, for example, cost of materials.
 Is the product elastic or inelastic?
Consumers analyze the price to see the product’s value by comparing the price with the
benefits. The price influences how a consumer views a product. For the Donairs, in the price is
raised the consumers will very likely find an alternate avenue for their meals. This means that
the price is elastic. Consumers of natural soaps will also be affected by the price but in a
different way. This kind of market sees a raised price as a sign of value. They are willing to pay
more for an exceptional product (ties in with ‘Prestige Pricing’).
 What approach should be taken?
There are a number of approaches that can be taken in order to reach an acceptable price:
1. Demand-oriented – focus on customer demand
2. competition-oriented – focus on competition in the market
3. profit-oriented – focus on stability between revenue and cost
4. cost-oriented – focus on cost aspects
For the Donairs, there can be emphasis on ‘prestige pricing’ which is an aspect of the demand-oriented
approach; this sets the price high in order to attract those consumers who are quality sensitive. Since
there is a lot of close competition in the fast food industry, some aspect of the competition-oriented
approach should also be taken.
For Natural Soaps, the emphasis will most likely be on the ‘penetration pricing’ which is an aspect of the
demand-oriented approach; this sets the price low in order to mass market the product.
STEPS FOR SETTING THE FINAL PRICE
Select approximate Price Range
Select List Price
Modify List Price (Discounts & Allowances)
Monitor and Adjust Prices
BREAK-EVEN ANALYSIS
This graph shows the relationship between total cost (fixed & variable) and total revenue. The
point that they meet is called the Break Even Point. This is the point at which the cost and
revenue are equal.
While this analysis shows where the two points are equal, it has to be said that the whole
concept to ......make a profit.
In evaluating how to price Donairs and Natural Soaps, it is evident that the pricing
strategies for both markets are enormously different and both take a considerable amount of
assessment in order to arrive at a fair price.