Pricing Workshop

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

Workshop Outline

Product Costings Pricing Strategy

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

Price setting • Exercise

• Put a retail price on the products given out

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

Drivers of product choice

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

Thank you

See you on the 21st January