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Pricing and Credit Strategies - Coggle Diagram
Pricing and Credit Strategies
Pricing
Involves both math and psychology
Has a greater impact on profits
Is an important signal of value
Price Conveys Image
Price sends important signals to customers: quality, prestige, uniqueness, etc.
Common small business mistake: charging prices that are too low and failing to recognize extra value, service, quality, and other benefits they offer.
Competition and Pricing
Must take into account competitors' prices
Key is to differentiate a company's products and services
Focus on Value
Two aspects of price
Objective value: Actual benefit they gain.
Perceived value: determines the price customers are willing to pay
Fighter brand
Dealing with Rising Costs
Use cheaper raw materials
Offer products in smaller sizes or quantities
Eliminate discounts, coupons, and freebies
Differentiate your company and its products and services from the competition
Add a surcharge
Emphasize the value of your company's product or service to customers
Communicate with customers
Introducing a New Product
Three Goals
Evolutionary products
Revolutionary products
Me-too products
Three basic pricing strategies
Skimming
Life cycle pricing
Penetration
Pricing Established Goods
Bundling
By-product pricing
Leader pricing
Suggested retail prices
Freemium pricing
Price lining
Odd pricing
Pricing for Manufacturers
Cost-plus pricing:
A manufacturer establishes a price that covers the cost of direct materials, direct labor, factory overhead, selling and administrative costs, and a desired profit margin
Direct Costing and Pricing
Absorption costing:
Traditional method of product costing in which all manufacturing and overhead costs are absorbed into the product's total cost
Variable or direct costing
Product costing method that includes in the product's costs only those costs that can vary directly with the quantity produced
Impact of Credit on Pricing
Installment credit
Trade credit
Credit (and debit cards)