Before a product is launched into the market, the manufacturer must have a well define and laid out pricing strategy for the product. A pricing structure is the framework which outlines the cost and the final end user price for a product. Pricing therefore is the process of the marketer using the four Ps of marketing. In this regard, price is the only P that generates income among the four. The process of structuring the price of a product in this case is to be done by considering: cost, price, channel margins and selling price. The following is a basic process followed by marketers in determining the prices in their pricing strategies.
First, the cost of one unit of the proposed product to be positioned in the market is determined. This is done by calculating the total cost of all the parts assembled into one machine. In this case the Cyclermate product direct cost per unit is 376 dollars. Secondly, the marketing strategy is developed. This is done by performing an analysis of the market, segments present in the market, the target customer and the desired market position of the producer over time. Thirdly, the marketer makes a decision on the marketing mix. This involves defining the product in its specifications, its distribution and then tactics to be employed in marketing. The fourth step involves the estimation of the products demand curve to enable get the relationship between the set price and the demand for the product. The fifth step involves the calculation of the total cost of the product. This involves the calculation of the variable, fixed, direct and indirect costs associated with the product.
The following step involves the marketer getting to know the factors that are present in the marketing environment. These factors include competition strategies, and other legal factors and they can be assessed by an analytical tool like porters five generic forces model. The marketer then sets then objectives to be achieved in then pricing strategy for that particular product. The last step is price determination where the marketing manager uses the understanding of the former steps to set the price.
As earlier mentioned price is among the four Ps of marketing that are used in the marketing mix. As a result it is dependent on promotion, product, and place. The four Ps are used in defining the marketing mix for the product. There are four methods of pricing normally adopted by a marketing manager: the cost-plus, target return, value based and psychological pricing. The method chosen for determining a pricing structure is dependent on the nature of the product and the most favorable method of setting the pricing structure.
In this case, Cyclermate has to form a pricing structure that is innovative and meets the need of the manufacturing company and its customers. Normally, this structure has some common objectives. First, the profit should be maximized as well as the revenue the company receives. However this should be done in considering of future profit margins so should be done with a long term objective. The company should also seek to maximize the number of units it produces and sells. This should be done strategically such that the long term costs are minimized. Then profit margins should also be maximized. Another objective that may be included in the pricing structure is the leadership in quality compared to other market players that bring competition on the company’s product. Lastly, the product should be created and positioned in the market such that it will survive for a long time in the UK bicycle market.
