The 4 p’s of marketing is the subject of this series of posts. Prior posts on 4 p’s of marketing include: the first four questions about your product, another four questions on product, and four questions on packaging.

Today’s post answers four questions about pricing. Answering these questions will help you, as a small business owner, to improve your marketing.

• What price do the forces of supply and demand dictate?
• How does the cost of producing each unit decrease as volume increases?
• How does the price decrease as volume increases?
• At what point do marginal costs and marginal revenue combine to set the most profitable price?

4 P’s of MarketingPrice
What Price Do The Forces Of
Supply And Demand Dictate?

Do you know how supply and demand come together to determine price?

If there is a small demand, and you produce your product just for that demand, the price can be high. People that really want a product are willing to pay more to get it if the supply is limited.

But there maybe other people who would buy the product at a lower price.

4 P’s of MarketingPrice
How Does The Cost Of Producing
Each Unit Decrease As Volume Increases?

The more units of a product that you produce, the cheaper each individual unit becomes. Yet your overall production costs goes up because you are producing more units.

Marketers often refer to “marginal costs”. It’s the amount that production costs go up by increments of units produced. For example, say you can produce 1,000 units for $10.00 each, and 2,000 units for $8.00 each. The 1,000 units will cost you $10,000, but you can get 2,000 units for $18,000. So adding the additional increment of another 1,000 units costs you an additional $8,000 or 80 percent of the first 1,000.

So the more units that you produce, the cheaper you can sell your product.

4 P’s of Marketing Price
How Does The Price Decrease
As Volume Increases?

The catch to producing more units is that you have to price the product to sell the additional units. So for each increment of units produced, you have to decrease your price. Marketers refer to “marginal revenue” as the amount that you have to decrease your price for each unit, as you add an increment of units.

In other words, the more units you have to sell, the cheaper you have to price your product.

4 P’s of Marketing Price
At What Point Do Marginal Costs
And Marginal Revenue Combine
To Set The Most Profitable Price?

To make the most profit from your product, you have to discover the best combination of units produced with price. In other words, you find the place where marginal costs and marginal revenue meet to provide the best profit return. This place is what marketers call “optimum price.”

4 P’s of MarketingPrice
Conclusion

You have much to consider in pricing your product. How many people want your product enough to pay a premium price for it? How many will buy it at different price points? Which quantity and price point will net you the most profit?

By answering these questions, you will determine the most profitable price for your product. Then you will have analyzed three of the 4 p’s of marketing.

To learn about the fourth p, you can access the next post at 4 P’s Of Marketing: Promotion.

Learn more about pricing strategies with  46 tactics that can fatten your bank account from the clients you already have. Just click the following link:

How To Raise Prices Without Losing Sales

You can get weekly email announcements of my future series, by completing the form below:

Posted 6-11-08:
4 P’s Of Marketing: Price

This entry was posted on Thursday, June 12th, 2008 at 7:14 am and is filed under Marketing Mix. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.