Pricing Workshop
Workshop Programme
Workshops
Proposed Date
Introduction workshop / The Food &
Drink Sector
PR, Social Media & Events
31st October
Pricing & Profitability
9th January
Best Practice Visit
21st January
14th November
Product Evaluation / Product & Market 20th February
Testing
Managing a small business – HR & 6th March
people management
Approaching your customer
27th March
Packaging & Labelling
24th April
Investment, Grants, Funding & Business 15th May
Growth
Creating Development Plans
5th June
Workshop Outline
Product Costings
Pricing Strategy
Price setting
• Price setting depends on
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•
•
•
•
•
price expectations of customers
price category (expected price level)
influence of quality
influence of image
possibility to substitute
elasticity
Price setting
• Exercise
• Put a retail price on the products given out
Drivers of product choice
First mention
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Price
Know all ingredients
Fat content
Brand name
Sell-by date
Sugar content
Salt content
Country it's from
Taste
Animal welfare standards
Ethical (e.g. Fairtrade)
Environmentally friendly
No artificial colours or flavours
Looks nice
Time food takes to reach store
Availability of usual
Organic
GM free
Trying new foods
Stories in papers/ news
Drivers of product choice
What are shoppers prepared
to pay a bit extra for?
First mention
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
High quality ingredients
Free range
Locally produced
Fairtrade
Well known brand
Organic
Retailer’s best own brand
High animal welfare standards
Environmentally friendly
Added health benefits
Country of origin
Homemade feel
Quality assurance standards
Traditional recipe
Innovative packaging
Packaging appearance
Exclusive
Restaurant style
Celebrity endorsed
High price-strategy
• product introduction with relatively high prices
• quality is sales argument
• goals:
• quick coverage of development costs
• to build a quality image
• to build the link with luxury or indulgence
High price -strategy
• Premium price strategy:
• permanent high prices (long term) – no price promotions !!!
• used for luxury goods, unique-products, products with low price
elasticity
£
time
High price - strategy
• Skimming price strategy
• high price at product launch, later price reduction
• Used in the elite / in fashion market - if products are in danger of being old
soon (notebooks, phones,); where there is no comparison between price and
real value possible; limited production- and sales-capacity
• risk: competition interested in the product
£
time
Low price-strategy
• product launch with low prices
• price is sales argument
• goals:
• to avoid market introduction of competition
• to push back competition
• capacity usage
• creation of a price image
• decrease of costs per piece
• to tie in customers
Low price-strategy
• Promotion price strategy:
• permanent low prices (long term)
• used for mass production products
£
time
Low price-strategy
• Penetration price strategy
• low price at product launch, later successive price increases
• used: to gain fast access mass markets; to avoid competition; if
new product has high price elasticity (customers do not want /
need the newest product)
• risk: price increase mostly very difficult to manage
£
time
General options
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Promotion prices: £9.99
Round prices: £5 £8
Psychological price barriers : £10, £20, £300
Price change by packaging change (change in size, change in
design,...)
• Price change by product change (now with more fresh fruits,...)
• Price "covering“ through cheap main product + expensive
additional products or spare parts (car: additional equipment,
spare parts,..)
• Value analysis: program to decrease costs (while retaining value)
The pricing challenge
Sample Pricing Plan
Basic Cost
Sale Price
Margin £
Margin %
RSP
POR£
POR%
A: Retail Normal
£
1.50
£
2.50
£
1.00
40%
£
4.49
£
1.99
44%
B: Retail Normal 2
£
1.50
£
3.00
£
1.50
50%
£
4.59
£
1.59
35%
C: Retail Matched Promotion
£
1.50
£
2.00
£
0.50
25%
£
3.49
£
1.49
43%
D: Retail Offered Promotion
£
1.50
£
2.00
£
0.50
25%
£
3.99
£
1.99
50%
E: Foodservice Normal
£
1.50
£
3.00
£
1.50
50%
£
4.20
£
1.20
29%
F: Foodservice Discount
£
1.50
£
2.50
£
1.00
40%
£
3.70
£
1.20
32%
G: Direct
£
1.50
£
2.99
£
1.49
50%
£
2.75
H: Special Promotion
£
1.20
£
1.75
£
0.55
31%
£
3.49
£
1.74
50%
Profit on Return (POR)
• This should be calculated by taking:
• The Retail Sale Price (RSP)
• Minus the cost price
• For a percentage, divided by the RSP
POR
• As a guideline, the following represents a farm shop’s expected POR (%).
Overall, 30% would be a reasonable expectation for a good farm shop with a
reasonable product range
Commodity
POR (%)
Fruit and salads
30
Potatoes and field vegetables
50
Home bakery
25
Regional preserves and honey
25-30
Clotted cream
30
Biscuits
18
Dried flowers/pot-pourri
60
Pricing
• Partly an ‘art’ partly a ‘science’.
• Many potential considerations, including:
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demand
costs
other internal factors (objectives, market positioning targets, etc).
competitors
Thank you
See you on the 21st January