A Couple of Squares is a company specializing in producing and selling gourmet cookies to retail stores. Recently, A Couple of Squares has been brainstorming the idea of starting an e-commerce website so they can sell there gourmet cookies directly to consumers instead of selling to retailers. There are many considerations that need to be evaluated when deciding to launch an e-commerce website. First, the risks of launching an e-commerce site and the steps to mitigate the risks must be evaluated. Along with the risks of launching an e-commerce site, the benefits of launching an e-commerce site also need to be taken into account. In order to seek profitability a break even analysis must be performed. Once profitability is feasible, A Couple …show more content…
A Couple of Squares should price their products based on customer value since there is no relationship between customers’ value for a product and the company’s costs. A Couple of Squares currently uses a cost based pricing system. Using a cost based pricing system can undercut profits due to customer value. If customers are willing to buy cookies from A Couple of Squares for twenty dollars and A Couple of Squares is only charging five dollars, they are losing out on a significant amount of profit. Basing pricing on customer value would also keep customers satisfied. Customers would be satisfied since the company is focusing on their individual needs. If the company prices their products based on customer value, the customer will be willing to buy the product because it is at a price they are willing to pay. Therefore, pricing based on customer value would maximize profits as well as customer …show more content…
A couple of Squares has a limited capacity for which to produce their products and smaller companies tend to have larger fixed costs than bigger companies. Therefore, A Couple of Squares must maximize profits in order to ensure that they will stay in business. A profit-oriented pricing objective is also useful because of A Couple of Squares’ increased sales goals. A Couple of Squares increased their sales goals due to recent financial troubles. Maximizing profits is the easiest way to meet these sales goals due to the fact that A Couple of Squares has limited production capacity. The last key consideration favors a profit-oriented pricing objective because A Couple of Squares offers a specialty product. A specialty product often has limited competition, therefore can be priced on customer value. Pricing at customer value will maximize profits as well as customer satisfaction. A Couple of Squares’ lack of production capacity, increased sales goals, and specialty product favor a profit-oriented pricing
The growth of online business has grown enormously over the years. Cliptomania is a family operated and owned small e-business that primarily sells clip on earrings (Brown, DeHayes, Hoffer, Martin, & Perkins, 2012, p. 308). Cliptomania early developments were very modest, and as such the company experienced copious strategic dilemmas. An initial strategic dilemma that the company encountered when establishing and building their new e-business undertaking was to create a website for the business operations and essentially to have it fully operable. The owners, Jim and Candy elected to hire a vendor to host the website and additionally utilize the IT systems resources of the vendor to sustain their business. At the very beginning they exploited the offerings of the Yahoo Store. However, continuing down this avenue of using the services of the Yahoo Store inevitably became too costly. By using the services and business offerings of a vendor made it convenient and effortless for Jim and Candy to start their e-business store. Unfortunately the couple did not have much in the way of professional help, and so they had to create and put together the website by themselves. Additionally they also had to deal with establishing their online credibility as many customers preferred to call in their orders just to talk with a real person before being comfortable enough to place their orders via the webpage.
Calculating the right price for a product can be difficult, mostly because it will affect Calibrated’s bottom line. Increasing the price of a product to maximize profit can induce several risks to a company. For example, making a change to the fixed or variable costs, the number of units sold will have an impact on the company’s profitability. Increasing the unit cost of a product and decreasing the number of units sold will have a negative impact on the
As we learned from Chapter 12, price must be carefully determined and match with firm’s product, distribution, and communication strategies. (Hutt & Speh, 2012, p. 300) Therefore, there should be a strong market perspective in pricing. In order to build an effective pricing policy, marketers should focus on the value a customer places on a product or service. One of the most effective ways to do so is differentiating through value creation.
- The pricing strategy is a way to recoup initial investments, competition with other companies, and the factor that volume will bring down production costs. A company may also look at the benefits to earn profits on their goods when looking at their pricing. A good example of this is my teacher Dr. Fishbeck and his IT consulting business. He offers very low rates due to his competition having better benefits with their size and customer
To sell your product for more than what you paid to make it, you must understand the basic economics of your company in order to set the price
Pricing is an important aspect of every business. Chief Financial Officer’s (CFO) use pricing to create financial projections, establish a break-even point, and calculate profit and loss margins (Power Point, 2005). It is the only element in the marketing mix that produces revenue. Price is also one of the most flexible elements of the marketing mix as it can be changed very quickly. This is usually done to beat competitor prices in an attempt to fix the product’s market value position very low (Anderson & Bailey, 1998). After all, high prices make it difficult to become the market share leader. The leading US retailer, Wal-Mart, is an expert at low product pricing as evident in 2004 with $250 billion dollars in sales to their 138 million weekly shoppers. However, they are also responsible for reducing prices so low that it drives specialty stores out of business. This is the effect Wal-mart has had on many toy stores and has almost closed the doors of the famous toy store Toys “R” Us Inc.
Impact of inputs on cost or differentiation. 3. Determinates of Buyer Power. 1. Bargaining leverage.
Rivalry: competition is important when; there is pricing war that the company must keep up with and high fixed costs...
With supply solely, factors involved with regulation of the supply also control some aspects of demand. Things such as production costs and desired net profit can determine whether a business succeeds or not. Having a balance between quantity and price is the greatest control any business can have. Pricing is obviously one of the most beneficial, or destructive, parts of a business. Pricing is the first and most valuable thing an individual will look at, which will overrule most other judgments based off of quality and detail. Balancing the price, however, helps to create a pristine product, with just the right amount of detail that will fuel the market, while still generating a steady net income.
In addition, value-based pricing is not a precise method. You’re going to have to tweak your figures, which might add some pressure on your business’ finances. Testing out the different prices can also be difficult when you are handling customer relations, as you can’t change your pricing model dramatically without it impacting your existing
Price is the amount of money paid by customers to purchase the product. Margin account should be taken into account in the decision as a response to the possibility of a competitor according to quickmba, 2004. The price which is creates sales revenue. For example is the cost. The price of goods is an important factor in the value of sales made. In theory, prices should be determined according to customer demand with the goods sold are affordable. Customers will researching the prices of goods sold because it shows how they appreciate what they are looking for and what they want to pay. The price is not issue to my restaurant. This is because my restaurant offers the price that customer can afford. We are offers a premium and medium price to the customer compare to other restaurant. Besides that, we also offering a high quality in service compare to other. For example, other restaurant they offer the best quality food at the highest prices compare to us we are offer a high quality food and service at the premium and medium
The price is the amount customers pay for a product. The cost is the amount spent by a business making the product. However, a firm needs to take account of the cost of production when setting price to ensure that it is making a profit on the products it offers. The price a business charges for its product or service is one of the most important business decisions management take. For example, unlike the other elements of the marketing mix (product, place & promotion), pricing decisions directly affect revenues rather than costs.
The most used cost-based approach to pricing a product is cost-plus-pricing, in which the seller sums all the costs for the product or service and then adds an amount to arrive at the selling price. This method, as Solomon underlines, is widely practiced by retailers and wholesalers due to its simplicity: in fact, users only need to estimate the unit cost and add the plus. To value the unit costs a firm must first evaluate its total costs, which are the sum of variable and fixed costs. The first ones vary directly with the level of production: for example, the cost of direct materials goes up in conjunction with increases in production volume. The second ones don’t change with sales and production, but are related with bills for rent, heat, interest, salaries, etc. (Solomon 2012,
The second market structure is a monopolistic competition. The conditions of this market are similar as for perfect competition except the product is not homogenous it is differentiated; thus having control over its price. (Nellis and Parker, 1997). There are many firms and freedom of entry into the industry, firms are price makers and are faced with a downward sloping demand curve as well as profit maximizers. Examples include; restaurant businesses, hotels and pubs, specialist retailing (builders) and consumer services (Sloman, 2013).
Without a proper pricing strategy, no business can expect to survive in the competitive market of today. And what leads to that strategy? Well! That's no other than the accurate identification of pricing objectives. Identifying the purposes of setting up the pricing is the first step towards a robust pricing strategy