I am here to take part in Costs for Entrepreneurs - Pricing by @yolvijrm and come to the point straight away.

  

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What is the importance of the pricing process?

The pricing process is important because it sets the price of a product or service. It is both an art and a science. A business decides how much it will charge for its products and services through the pricing process.

Pricing is the process that helps determine the pricing based on manufacturing cost, market, competition, market position, and product quality. Pricing is also an important influencing factor in microeconomics value allocation theory.

The pricing process is important because it tells customers whether a product is worth their time and money.
It helps increase sales, attract new customers, and increase profits.
It directly impacts the company's end result and is a key factor in purchasing behavior.

Analyzing material price and cost accounting is the difference between actual and budgeted price for finished goods we intend to put in the market.

Therefore the formula for efficiency variance:

Efficiency variance = Actual quantity – budgeted quantity × standard price or rate.

How to apply price variances to direct materials in cost accounting. An obvious way to reduce our costs is to analyze the prices we pay for materials. For example we manufactured welding transformers and we used copper wire for winding to manufacture the transformers.

Now if we came up with a standard or budgeted price of $100 per transformer for copper wire but when we finished the process our actual cost was $105, therefore we have to keep the margin during planning of project.

The pricing process takes into account:

Customer needs and preferences
Competition
Market analysis
Manufacturing cost
Market position
Product Quality

Pricing is a combined process of setting the strategies adopted for staying competitive as well as profitable in the market.

The pricing process takes into account:
Such as cost-plus pricing, market-oriented pricing, value-based pricing, and promotional pricing.
What aspects should be considered when establishing the price of a product or service?

Cost: The cost of making the product, such as materials, machinery, work costs, and inspection.
Market demand: If the demand for a product is high, its price also increases.
Competition: The price of the product is decided according to the current competition.
Marketing cost: How expensive the marketing of the product will be is also an important factor in determining the price.

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Customer perception: What is the perception of the product to the customer?
Distribution channel: Prices may vary in different distribution channels.
The purpose of the pricing factor is to set the product price in a rational way because if the product price is too high or too low, it will fail in the market. The pricing factor determines whether the company should be able to retain its customers.

The pricing process of a product should take into account all the costs associated with its production and sale. The proper and smart pricing factor is the calculation of setting the right price for the target customers as well as for the company as well. The primary goal of product pricing is to match the value of a product or service with the demand and costs of its customers and keep the company in profitable limit.

Provide examples of businesses that fit the pricing methods explained in class, stating your reasons

I'll take Tata Consultancy Services as an example, who follow their average cost pricing rules in line with a standardized pricing strategy so that the price they charge consumers for their products or services is set to be equal to the cost required to produce the product or service.

If they have a premium product or service, they can market it as premium or high-end and price it accordingly. If their consultancy service is considered better than other similar services, they can charge for it.

Usage-based pricing methods can be different, like when some software companies charge their customers on a metered basis.

If you are a high-end service provider, you can set your price accordingly. For example, if you look at Air France or British Airlines, they do not set their prices on the pricing of their competitors, who are selling their services at a lower price.

Whereas Air Asia or other ordinary companies can compete by reducing their prices. This will attract new customers and retain existing customers.

However, price is not the only factor that can attract customers to your business but quality also counts. We should always keep the different segments of customers in mind and plan our budget accordingly.

Dynamic pricing

Airlines attract passengers by changing the prices of their flights. This allows them to improve their load factor and earn more revenue per flight.

Price optimization

I can tell you about Raymond, a clothing retailer, who can set the price of a popular item based on factors such as production cost, inventory levels, and competitors' prices. Because they fall in the premium category, it increases their sales and profits.

Give examples of businesses that would fit these pricing methods, along with your reasons.

I propose to calculate the price of the product to be sold as per the following method to achieve my desired profit margin and stay in the race and compete in the market.

Here is how I have figured out (Plus minus 2%) in this case since it's the demand of the project in this case.

Concepts and Relationships | Values
Investment made in machines | 300,000
Expected profitability | 16%
Expected utility amount | 48,000
Estimated units for next year | 10,00000
Expected unit utility | 3.33
Total unit costs of producing and selling | 110
The profit margin on costs | 4.80%
Sale price | 114.80

I have calculated a profit margin of 4.8% to the total cost of the product at the initial stage with a substantial margin for Increment in the future to stay in the race with the competitor.

The selling price at the entry level is $114.80
The selling price has enough margin compared to the competitor, which is @$118, having enough profitability and also meeting the market acceptability.

I hereby invite @jahangeerkhanday, @radjasalman and @abdullahw2

Cc: @adeljose