Pricing Variables
As you price your product, how much you charge depends on how much profit you need to make. If you want to set a price which lets you make money, you’ll need to capture all of your costs. This is critical to making any new product or market entry profitable, particularly in international markets, which often involve unexpected costs.
If you’ve read the earlier blogs of this series, you’ll know that pricing isn’t merely assigning numbers to a product. You’ve read all about the different strategies, value propositions, and the use of magic numbers, but now you’re wondering how this actually translates into a price for your product.
To price right, you need to comprehend the variables that go into pricing a product, considering the contribution of all steps in the product life cycle.
This includes the costs of development and manufacturing, logistics and distribution, marketing, retail and your profit margin.
The Price Visualiser: Your Secret Weapon in the International Pricing War
To help you understand this cost allocation, I’ve made a visual tool, the Pricing Visualiser. This way, you’re able to visually see the cost allocation from the product’s development and manufacturing all the way to the it’s marketing, as a price guide to charge effectively.
Freeworld Australia, my shoe business, was the inspiration behind the shoe silhouette. In the quest for precision in pricing strategies, the Pricing Visualiser was born, serving as a comprehensive guide that enables businesses to visualise the allocation of costs throughout the product’s journey.
Understanding the Price Visualiser
The Price Visualiser is a multifaceted tool that covers various cost segments:
- Target FOB: Setting the target price at the factory gate (Free on Board), including production costs and a margin for profit.
- Freight and Insurance: Incorporating costs associated with shipping and insuring the product during transit.
- Marketing Expenses: Encompassing expenses related to advertising, promotions, and market outreach.
- Mould Costs: Factoring in any tooling or mould expenses incurred during the manufacturing process.
- Distributor Margin: Allotting a margin for distributors who aid in getting the product to the market.
- Retail Margin: Covering the margin required by retailers for shelf space and sales efforts.
- Take-Home Profit: Ensuring that the final price encompasses a profitable return for the company after all costs and margins are covered.
Utilising the Price Visualiser for Strategic Pricing
The visual representation provided by the Pricing Visualiser allows for a more nuanced approach to pricing decisions. By having a clear breakdown of costs and margins, businesses can:
- Accurately Set Prices: Align prices with market demands and profitability goals.
- Identify Costly Segments: Pinpoint areas where costs can be optimised or reduced.
- Stay Competitive: Understand competitor pricing strategies and make informed adjustments.
- Enhance Profitability: Ensure that the final price accounts for all expenses while maintaining a competitive edge.
In the intricate landscape of product pricing, understanding the pricing variables is imperative.
Pricing is like finding your way through a maze—tricky but rewarding when you get it right. Enter the Pricing Visualiser: your compass for making pricing decisions that balance costs, profits, and market edge.
This tool is your pricing wizard, decoding complex cost structures into a clear roadmap. It helps set prices that cover all bases, ensuring your product stands out without losing out on profits.
Think of it as your shortcut to pricing success—making sure every dollar counts while keeping your product competitive and your business thriving.
Effective pricing isn’t just about numbers; it’s about mastering the art of value perception. With the Pricing Visualiser, businesses can transform complex cost structures into a clear, visual roadmap to success.
