Markup of 100% over cost price - Keystone pricing, Retail price is $45.00 - $22.50 cost with keystone pricing, 70% gross margin - 30% COGS implies gross margin, Markup pricing - Cost-based pricing method used, Simple to use and calculate - Advantage of cost-based pricing, May result in overpricing or underpricing - Disadvantage of cost-based pricing, Setting price equal to competitor’s price - Parity pricing, Price of next closest substitute - Reference value, Adds value compared to alternatives - Positive differentiating factor, Reduces value compared to alternatives - Negative differentiating factor, Customer’s perceived value of product - VTC (Value to Customer), $44.44 - Price based on 55% gross margin, cost $20, P = C / [1 – (%GM/100)] - Price formula with %GM, 33% - 25% GM equivalent markup, Financial reports - Industry gross margin source, Adjust substitute price based on size ratio - Reference value for different package size, Reflects market pricing - Advantage of competition-based pricing, Risk of price wars or low profit - Disadvantage of competition-based pricing, Starts with customer’s needs and value - Customer-based pricing key feature, Price should be slightly below VTC - VTC price decision, Simple and standard practice in retail - Reason for cost-based pricing’s popularity, Competitor prices not publicly posted - Difficulty with competition-based pricing, Use sales team info and market intelligence - Overcoming competitor price data issue, Below VTC but above cost - Suggested price for high VTC product, Depends on customer type and situation - Different VTC for segments, Cost, competition, and customer value - Three price-setting starting points, Requires customer research and data - Why customer-based pricing not widely used, Gross margin is based on selling price; markup is based on costargin vs. markup - Gross margin vs. markup, Economical way to stay aligned with competitors’ prices - Purpose of standard markup in retail, It ignores how many units will actually sell - Why standard markup may not maximise profit,

Chapter 2: Pricing Decision

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