Pricing Workshop
Dec 25, 2015
Workshops Proposed Date
Introduction workshop / The Food & Drink Sector
31st October
PR, Social Media & Events 14th November
Pricing & Profitability 9th January
Best Practice Visit 21st January
Product Evaluation / Product & Market Testing
20th February
Managing a small business – HR & people management
6th March
Approaching your customer 27th March
Packaging & Labelling 24th April
Investment, Grants, Funding & Business Growth
15th May
Creating Development Plans 5th June
Workshop Programme
Price setting • Price setting depends on
• price expectations of customers • price category (expected price level)• influence of quality• influence of image• possibility to substitute• elasticity
Drivers of product choice1 Price2 Know all ingredients3 Fat content4 Brand name5 Sell-by date6 Sugar content7 Salt content8 Country it's from9 Taste
10 Animal welfare standards11 Ethical (e.g. Fairtrade)12 Environmentally friendly13 No artificial colours or flavours14 Looks nice15 Time food takes to reach store16 Availability of usual17 Organic18 GM free19 Trying new foods20 Stories in papers/ news
First mention
What are shoppers prepared to pay a bit extra for?
1 High quality ingredients2 Free range3 Locally produced4 Fairtrade5 Well known brand6 Organic7 Retailer’s best own brand8 High animal welfare standards9 Environmentally friendly
10 Added health benefits11 Country of origin12 Homemade feel13 Quality assurance standards14 Traditional recipe15 Innovative packaging16 Packaging appearance17 Exclusive18 Restaurant style19 Celebrity endorsed
First mention
High price-strategy
• product introduction with relatively high prices• quality is sales argument
• goals:• quick coverage of development costs• to build a quality image• to build the link with luxury or indulgence
High price -strategy
• Premium price strategy: • permanent high prices (long term) – no price promotions !!!• used for luxury goods, unique-products, products with low price
elasticity
time
£
High price - strategy• Skimming price strategy
• high price at product launch, later price reduction• Used in the elite / in fashion market - if products are in danger of being old
soon (notebooks, phones,); where there is no comparison between price and real value possible; limited production- and sales-capacity
• risk: competition interested in the product
time
£
Low price-strategy
• product launch with low prices• price is sales argument
• goals:• to avoid market introduction of competition• to push back competition• capacity usage• creation of a price image• decrease of costs per piece• to tie in customers
Low price-strategy
• Promotion price strategy: • permanent low prices (long term)• used for mass production products
time
£
Low price-strategy• Penetration price strategy
• low price at product launch, later successive price increases• used: to gain fast access mass markets; to avoid competition; if
new product has high price elasticity (customers do not want / need the newest product)
• risk: price increase mostly very difficult to manage
time
£
General options• Promotion prices: £9.99• Round prices: £5 £8• Psychological price barriers : £10, £20, £300• Price change by packaging change (change in size, change in
design,...)• Price change by product change (now with more fresh fruits,...)• Price "covering“ through cheap main product + expensive
additional products or spare parts (car: additional equipment, spare parts,..)
• Value analysis: program to decrease costs (while retaining value)
The pricing challenge
Sample Pricing Plan Basic Cost Sale Price Margin £ Margin % RSP POR£ POR%
A: Retail Normal £ 1.50 £ 2.50 £ 1.00 40% £ 4.49 £ 1.99 44%
B: Retail Normal 2 £ 1.50 £ 3.00 £ 1.50 50% £ 4.59 £ 1.59 35%
C: Retail Matched Promotion £ 1.50 £ 2.00 £ 0.50 25% £ 3.49 £ 1.49 43%
D: Retail Offered Promotion £ 1.50 £ 2.00 £ 0.50 25% £ 3.99 £ 1.99 50%
E: Foodservice Normal £ 1.50 £ 3.00 £ 1.50 50% £ 4.20 £ 1.20 29%
F: Foodservice Discount £ 1.50 £ 2.50 £ 1.00 40% £ 3.70 £ 1.20 32%
G: Direct £ 1.50 £ 2.99 £ 1.49 50% £ 2.75
H: Special Promotion £ 1.20 £ 1.75 £ 0.55 31% £ 3.49 £ 1.74 50%
Profit on Return (POR)
• This should be calculated by taking:• The Retail Sale Price (RSP)
• Minus the cost price
• For a percentage, divided by the RSP
POR
• As a guideline, the following represents a farm shop’s expected POR (%). Overall, 30% would be a reasonable expectation for a good farm shop with a reasonable product range
Commodity POR (%)
Fruit and salads 30
Potatoes and field vegetables 50
Home bakery 25
Regional preserves and honey 25-30
Clotted cream 30
Biscuits 18
Dried flowers/pot-pourri 60
Pricing• Partly an ‘art’ partly a ‘science’.• Many potential considerations, including:
• demand• costs• other internal factors (objectives, market positioning targets, etc).• competitors