Financial%20Analysis:%20Estimate%20Price

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Financial Analysis Estimate Price
Feasibility Analysis Part 4A

• Paper 3
• Entrepreneurship Innovation

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Factors affect price
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The product price is determined by the value
created. for the customer.
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Think about distribution channel
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Cost-based strategies

• Based on achieving a given margin over and above
  costs of manufacturing, marketing and
  distribution.
• Cost-Plus Price full cost mark-up (as a of
  full cost)
• Mark-Up Price direct cost mark-up (as a of
  direct cost). This technique is preferred to
  Cost-Plus for products with a relevant percentage
  of direct costs on total costs.

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Break-Even Analysis
Price variable costs fixed costs/quantity.
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Pricing strategies
Low
High
Quality
Penetration
Economy e.g. Store Brand spaghetti
Low
Price
Skimming e.g. New film or album
Premium e.g. LVMH
High
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Pricing strategies

• Premium pricing
• Uses a high price, but gives a good
  product/service exchange e.g. Concorde, The Ritz
  Hotel
• Penetration pricing
• offers low price to gain market share - then
  increases price
• e.g. France Telecom - to attract new corporate
  clients (or Telewest cable)
• Economy pricing
• placed at no frills, low price
• e.g. Soups, spaghetti, beans - economy brands

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• Price skimming
• where prices are high - usually during
  introduction
• e.g new albums or films on release
• ultimately prices will reduce to the parity
• Product line pricing
• rationale of a product range
• e.g. MARS 32p, Four-pack 99p, Bite-size 1.29

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• Optional product-pricing
• e.g. optional extras - BMW famously
  under-equipped
• Captive product pricing
• products that complement others
• e.g Gillette razors (low price) and blades (high
  price)
• Product-bundle pricing
• sellers combine several products at the same
  price
• e.g software, books, CDs.