Department of Applied Economics and Management

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Pricing for Success
Wen-fei Uva Senior Extension Associate
Department of Applied Economics and
Management Cornell University Ithaca, NY 14853
Modified by Georgia Agriculture Education
Curriculum Office June, 2002
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Marketing is

• Marketing is EVERYTHING you do to promote your
  business, from the moment you conceive of it to
  the point at which customers buy your product or
  service and begin to patronize your business on a
  regular basis.
• Jay Conrad Levinson (Guerrilla Marketing)
• The key words to remember are everything and
  regular basis.

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Your Marketing 4 Ps
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Why Need a Pricing Strategy?

• Playing the game with the big guys
• Price takers
• Smart pricing is good marketing
• Price cutting is a dead end for everyone

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Consumers are Looking for Value
VALUE Quality Service Information Price
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Pricing Questions

• How much do your competitors charge?
• How much are customers willing to pay?
• Does your product or business have additional
  value/image for which price may be raised? -
  Differentiation
• Most Important What is your cost to produce and
  market the product? -- Pricing for profit

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Cost Accounting 101
Price (Revenue)
Contribution
Variable Costs
Break-even
(variable cost are items that vary with
production )
Fixed Costs
(fixed costs are items that do not vary with
production)
Profit
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Costs of Production

• Fixed costs cost items that do not vary with
  production volume.
• Building and land rent
• Interest
• Depreciation
• Property taxes
• Insurance
• Family living expenses.

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Costs of Production

• Variable costs cost items that vary
  proportionately with production volume.
• Seeds and plants
• Fertilizer and spray
• Packaging Materials
• Hourly wages
• Potting soil
• Gas/Fuel
• Advertising, utility

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Gross Margin Method
Gross Margin is the difference between the cost
of the product and its selling price
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Mark-Up Method
Mark-up is adding on to the costs of good sold.
2.6
2 (2 X 30)
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Gross Margin vs. Mark-Up
60
37.5
100 60
Dont Forget to Add the Fixed Costs!
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Profit Equation
(Dont forget to take into account shrinkage)
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Reason for Changing Prices

• Lower Prices to
• Meet competition
• Attract customers to your place
• Get rid of excess inventory
• or
• Increase Prices to Reflect
• the value of a unique product
• A special service a prestige image

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Sell for a Premium - Ways to Differentiate Your
Business and Products
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4 Primary Motivators of Todays Consumers

• Convenience - On-the-go foods, meal solutions,
  and functional packaging
• Wellness - Fear about aging, declining health,
  and increasing medical costs Look for products
  offer health benefits
• Food Quality and Safety- Quality is the basic
• Gratification - I am worth it, Help them succeed

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Make Sense of Your Position

• Your strength and weakness
• Your competitors strength and weakness
• Find out your position in customers mind
• The Best Product
• The Best Total Costs
• The Best Solution - best product mix, best
  service, convenience, customization

Choose Your Marketing Position and Differentiate
Yourself
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Ways to Differentiate Your Product

• Physical Characteristics features, performance,
  durability, packaging

Value-added, Convenient
Something Bigger or Better
Something Unique
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• Availability stores, by phone, fax or internet,
  diversity

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• Service delivery, installation, guarantee,
  training, maintenance, repair

Think for your customers - Caring
Think like your customers
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Find the teachable moment
Share your knowledge - You are the expert
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• Image symbol, event, media, information

Make the image tangible, i.e. display gardens
Have something for the kids
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Make it close to home - Buy Local
Make it fun
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Pricing Based on Product Characteristics

• A. Everyday Sale Items
• Items people know the prices
• Start watching ads
• Change the items as you find them
• Promote your everyday sale prices
• Never be the lowest price in the market
• If you are not comfortable with the price, dont
  stock the item

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Pricing Based on Product Characteristics - cont.

• B. Promotional Price Items
• Used to attract customers to your place
• Items you got a good deal
• Encourage customers to try new products
• Budget for advertising/promotion
• Space your sales time out
• Dont forget employee training
• Use direct mailing
• Never forget a customer, and never let a customer
  forget you.

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Pricing Based on Product Characteristics - cont.

• C. Variable Price Items
• Customers are not sure about the price
• What makes the most money for you?
• Strategically increase prices to enhance your
  overall margin
• Reason for additional charges
• I am already here.
• I am in a hurry.
• It is a minimal price difference (10).
• The competition is too far.
• The Value Formula.

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Pricing Based on Product Characteristics -cont.

• D. Blind Price Items
• Items customers have no idea how much they are.

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• Evaluate Blind Price Items
• Does it take extra time to price?
• Does it take extra handling?
• Is it seldom used?
• Is it a repair or replacement item?
• Does it have a luxury or status appeal?
• Is it seldom promoted?
• Is it not seasonal?
• Is it a recreational item?
• Is it not sold in a mass merchant?

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Some Pricing Strategies
Price-Lining - Feature products at limited
prices Single-pricing - Charge same price for all
items Everyday low price - a value image
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• Odd-ending pricing
• .99, .49 endings
• How about .50 ending?

Not for Farmers Market
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Volume pricing - 1 for 2.50 2 for 4.99 (or
5.00) - No real discount
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Quantity discount pricing - One for 2.00 and
three for 5.00 - Encourage people to buy more
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Cumulative pricing - Base on the total volume
purchased over a period of time - Incentive for
return purchases
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Trade discount/Promotional allowances - Reduction
in price for marketing function buyers will
perform Cash discount - Encourage buyers to pay
their bills early/on-time Seasonal discount
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Additional Pricing Reminders

• Price clearly

• Having the Lowest Price in the town image cant
  get you higher prices for higher quality.
• Often lowing prices results in lower profits
  (cant compensate with volume)