How To Price - How to Price a Product and/or Service...

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Copyright Atomic Dog Publishing, 2006 Copyright Atomic Dog Publishing, 2006 How to Price a Product and/or Service Entrepreneurial Pricing Strategies
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Copyright Atomic Dog Publishing, 2006 Memorize this formula. You will use and see it often! R – C = P (revenue minus cost equals profit). Setting price for products and services is a critical factor in the success of a venture.
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Copyright Atomic Dog Publishing, 2006 “Right price” is one that is neither too high nor too low. One of the most straightforward business truths, yet one of the more difficult for the new entrepreneur to understand, is the marketplace sets price. Competitor pricing strategy is an overriding consideration in setting price. “Cost-plus pricing”: New entrepreneurs often set the price of their products or services by adding up all the costs involved in bringing the product or service to market and then adding a specific amount for profit.
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Copyright Atomic Dog Publishing, 2006 Problem with cost-plus pricing: Customers care about the price they have to pay for products and services and the value they receive for that price. If the entrepreneur uses the cost-plus pricing approach: - The price is set too high and the customer does not buy - The price is set too low and returns less profit
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Copyright Atomic Dog Publishing, 2006 Common misconceptions about the reasons for setting a price. The goal of pricing a product or service should be to increase sales volume. - Many entrepreneurs use pricing strategy as a means of increasing sales volume. . The effect of price on volume is well illustrated by basic economics. - The supply-demand-price equation. - This equation assumes a free marketplace with willing buyers and willing sellers.
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Copyright Atomic Dog Publishing, 2006 The formula has four implications regarding price: - If supply is held static and demand increases, prices will rise. - If supply is static and demand falls, prices will fall. - If demand is static and supply increases, prices will fall. - If demand is static and supply decreases, prices will rise.
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Copyright Atomic Dog Publishing, 2006 There are two basic types of demand in free markets: elastic and inelastic. - Elastic market: A market in which overall demand will expand if prices are lowered. - Inelastic market: A market in which demand will not respond to price changes. In an elastic market, the reduction of prices by a
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This note was uploaded on 02/28/2011 for the course ENTR 3310 taught by Professor Ortega during the Spring '08 term at University of Houston.

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How To Price - How to Price a Product and/or Service...

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