A pricing strategy new products is a model or method used to establish the best price for a product or service. Imagine that you want to start a new business and it is related to the production of some product. But you don't know exactly how to set a price for that product, you have some hesitation. In this case, what factors do you think the price of that product should be determined on?
The topic we will talk about in this video will be the pricing of a product before offering it to the market. First of all, let's look at the simple concepts of finance - income, profit and cost. Let's say that we sold 100 units of a product for $5, then our income is 100 multiplied by 5, which is $500. Let's say that the cost for each product is $4, and the total cost will be $4 multiplied by 100 products, that is, $400. Profit is equal to revenue minus cost, and in this example, it is $500 minus $400, that is, profit is $100.
Here, we need to look at a subtle point in terms of costs. In general, there are 2 types of expenses. One is fixed costs, such as warehouse rent or internet payments that are the same every month, etc. The second type of cost is variable costs. This includes the raw material price of the product, utility costs, etc. Because these costs may vary from month to month. That's why we call it variable costs. Total costs are equal to fixed costs plus variable costs (Total costs = fixed costs + variable costs). Let's imagine that in the example we mentioned, 100 dollars of the total costs, that is, 400 dollars, are fixed costs, and 300 dollars are variable costs. By emphasizing these simple concepts, we can see what is included in the price of a product set at $5. In more detail, the price of one unit of product is $5, which includes both fixed and variable costs and profit. Knowing these costs will help us optimize profits. So, we can reduce these costs as much as possible by making better decisions by analyzing and understanding which parts of the product have the most costs.
In general, when a company enters the market with its own product, the price of the product may be different, and after gaining a certain position in the market, it may make certain changes in prices. Here, as an exception, it can be said that the low market entry price of premium products can have a negative impact on the product's premiumness.
If we ask our main question, well, when entering the market, what should we set a price for our product?
So, there are 3 methods for this. The first method is cost-focused pricing, the second is competition-focused pricing, and the third method is customer-focused pricing.
Under cost-focused pricing, we set prices based on the cost of the product. For example, let's say that we are engaged in the production of shoes and we calculate that the cost of a pair of shoes is 10 dollars, and we set a selling price for those shoes, let's say, 15 dollars. We earn 5 dollars profit from here.
The second method, competition-focused pricing, is explained as follows: if we look at the same example, competition-focused pricing is based on the prices of shoe brands in a similar market. For example, we see in the market that the average price of shoes with similar features to our $10 shoe is $20, so if we price our product at or around $20, this is competition-focused pricing.
According to the third and last pricing method, customer-focused pricing, the price of the product is determined according to the value that the customers give to that product. There is a special point here that, for example, in the case of shoes, if potential customers are willing to pay $30 for those $10 shoes, then the shoe producer has made a huge profit. In such a case, new competitors may also enter the market, seeing that the profit in this product is high. On the other hand, another complication of this pricing method may be that it is difficult to gather information about how much potential customers are willing to pay for this product.
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