Merchants use a variety of methods to determine the price of their products
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Merchants use a variety of methods to determine the price of their products. Describe a store and product for each of the pricing methods listed below and whether you consider it to be effective.
a. Referencing pricing
b. Leader pricing
c. Psychological pricing
d. Odd-End pricing
e. Price Lining
f. Prestige Pricing
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In determining a price for your product, it is important to use your costs of production as base. Therefore, you must know your cost of production so that a break-even point can be established.
The first step in pricing is to determine your product cost. All costs can be divided into variable and fixed (overhead) costs. Variable costs, sometimes called out-of-pocket costs, are the costs of doing business. These are production-related and include materials, labor, advertising and packaging. The fixed costs are the costs of being in business. They include all items that you pay for regardless of whether or not you are producing or selling a product. Examples are tools, equipment, depreciation, utilities and taxes. Remember, the reason for establishing your product cost is to form the base for your pricing formula.
No single pricing formula will work for all businesses, nor is there a formula that will assure maximum profits in all situations. Every business must approach the problem individually. What follows are several formulas to help you determine a price. Each formula adds an additional item to consider in determining a selling price. By making conscious decisions based on facts, you can determine your price. If, after using the formulas, you find that your selling price is noticeably higher than that of your competitors, you may need to look for ways to lessen your production costs, reduce overhead costs or accept less profit, and become more efficient without affecting the quality of your product.
Prestige Pricing
Prestige pricing refers to high markups and/or pricing above the ...
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