PRICING POLICY
Business Plan
Pricing Policies
• Cost Oriented Pricing – businesses calculate the costs
of acquiring or making a product, their expenses of doing
business, and then add their projected/desired profit to
arrive at a price. There are two ways of doing this:
• Cost Plus Pricing – Costs and expenses are calculated
and then the desired profit is added. Generally used by
service busines (graphic arts, ISP's, contractors, etc).
• Expenses (parts and/or materials) + labor + profit = price
• example – building supplies ($700) + labor ($30hr x 5) + profit
(10%) = price ($935)
• Competition Oriented Pricing – when businesses study
their competitors to determine their prices.
Markup Pricing –
• Is the difference between the price of an item and its cost.
Generally used by retailers who acquire goods for resale.
• cost (c) + markup (m) = retail price (rp)
• example – shirt ($10) + markup (50%) = rp ($15)
Going Rate Pricing –
• Aligning prices with competitors
Pricing Techniques
• Psychological Pricing – creating the illusion that your
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customers are getting a great value.
Odd–Even – setting prices that end in either all odd or all
even numbers
Prestige Pricing – setting higher than average pricing to
suggest status
Promotional Pricing – items are reduced for a short
period of time
Price Lining – all merchandise in a given category is set
at a certain price (i.e. - all blouses $25)
New Product Introduction
• Skimming Pricing – setting a very high price on a new
product to capitalize on the initial high demand.
• Penetration Pricing – the initial price for a product is set
very low.
Instructions
• Introduction – introduce the section by explaining why it
is important for businesses to price their products
correctly
• Bullet Points – for each bullet point, write a paragraph
explaining each of the following:
• The Pricing Policy you will be using and why.
• The Pricing Technique you will be using and why.
• Your strategy for New Product Introduction.
• Tips – think in terms of how these policies will:
• get the product or service accepted by the community
• help maintain (and hopefully increase) your market share in the
face of competition
• produce profits
• Save as "Pricing" in your Business Plan folder