The 4 p’s of marketing is the subject of all my posts this week. Monday’s post answered the first four questions about your product. Tuesday’s post covered another four questions on product. Wednesday’s covered 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?

Price - 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 Marketing Question 13: Price - 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 higher. People that really want a product are willing to pay more to get it if the supply is limited.

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

4 P’s of Marketing Question 14: Price - 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 is. Your overall production costs will go 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.

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

4 P’s of Marketing Question 15: 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 you have to sell, the cheaper you have to price your product.

4 P’s of Marketing Question 16: 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 number of units produced with price. Or in other words, 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 Marketing Question 16: Price - 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 the four price questions and the three questions above, you will be able to determine the most profitable price for your product. Then you will have analyzed three of the 4 p’s of marketing.

You can access the next post at 4 P’s Of Marketing: Promotion.

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Posted 6-11-08: 4 P’s Of Marketing:

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