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5. ResearchResearch can help you find the optimum price for your products. Generally, the optimum price is one that your customers are willing to pay, without it affecting your profits. This isn't a one-off activity, you must monitor your key pricing influences regularly as part of your overall market research to ensure your prices stay competitive and you still meet your customers' expectations. Market testingTo help you determine how much your customers are willing to pay for your product or service you should perform some form of market testing. As a start, research your customer's purchasing behaviour such as:
With this customer information in mind, you can then develop a price comparison offering a number of different product or service options for testing to help you determine a price range that is acceptable. CompetitorsYou should have already determined who your direct competitors are and how your business compares to them when you developed your marketing plan. This information can be useful to help you determine your price point. If you decide to use your competitors' prices as a guide, be careful that it doesn't dictate your prices too much, as it can seriously undervalue your product or service and drive down your profits. When you compare your business to competitors, it's also important to ensure you look at the business as a whole and compare on other value-based traits (such as special features, quality and customer service) as well as price. InfluencesPricing influences are external factors that can impact the price of products. Four influences that you may encounter include:
Price sensitivityPrice sensitivity refers to price fluctuations as customer demand increases and decreases. For example, commodity goods such as petrol have high price sensitivity. The difference of a few cents in price can impact a customer’s behaviour. Some markets are more sensitive to price increases than others. Price sensitivity can change over time based on a number of factors including changes in the economic environment, competition or demand. Factors other than price, such as quality, service, and uniqueness, can also influence price sensitivity. Level of demandProduct and service demand can influence your prices. If there is high demand, it is likely you can increase your price. Price can also influence demand. For example, if the price lowers, then demand can temporarily increase. Level of competitionCompetition can also influence your product’s or service’s price. In general, the less competition you have, the more demand there is for your product. If a new competitor enters the market, the competitor can affect your price. Government regulationsGovernment regulation can influence your pricing decision, as additional fees or levies may increase the sale price of your product or service. Break-even analysis depends on the following variables: Total Variable Cost The
product of expected unit sales and variable unit cost, i.e., expected unit sales times the variable unit cost. Total Cost: The sum of the fixed cost and total variable cost for any given level of production, i.e., fixed cost plus total variable cost. Total Revenue: The product of forecasted unit sales and unit price, i.e., forecasted unit sales times unit price. Break-Even Point: Number of units that must be sold in order to produce a profit of zero (but will recover all associated costs). In other words, the break-even point is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company. One may use the JavaScript to solve some other associated managerial decision problems, such as:
The graphic method of analysis (below) helps you in understanding the concept of the break-even point. However, the break-even point is found faster and more accurately with the following formula: Q = FC / (UP - VC)where: Q = Break-even Point, i.e., Units of production (Q), FC = Fixed Costs, VC = Variable Costs per Unit UP = Unit Price Therefore, Break-Even Point Q = Fixed Cost / (Unit Price - Variable Unit Cost)
 Which of the following refers to the costs of production that vary depending on the number of units produced?A variable cost is a corporate expense that changes in proportion to how much a company produces or sells. Variable costs increase or decrease depending on a company's production or sales volume—they rise as production increases and fall as production decreases.
Which of the following refers to an amount added to the cost of a product to create the price at which a channel member will sell the product?Definition: Mark up refers to the value that a player adds to the cost price of a product. The value added is called the mark-up. The mark-up added to the cost price usually equals retail price.
Which of the following refers to a pricing strategy in which the price changes for different buyers based on order size or geographic location?Geographical pricing is a practice in which the same goods and services are priced differently based on the buyer's geographic location. The difference in price might be based on the shipping cost, the taxes each location charges, or the amount people in the location are willing to pay.
Which of the following refers to the value of something we give up to obtain something else?Opportunity cost is the value of something given up to obtain something else.
Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?Variable costs are costs that remain constant in total dollar amount as the level of activity changes. Variable costs are costs that vary on a per-unit basis with changes in the activity level. A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost.
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Which of the following refers to the costs of production that fluctuate depending on the number of units produced?
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