Strategic Marketing Basics

In cases where short term profit is the priority, we will choose a pricing method guided by cost and revenue considerations. So, it's important to have clear profit objectives before starting the analysis. If you're not sure about them, imagine various scenarios with the financial department of your company...

 

 Begin with a well documented cost analysis (fixed costs, variable costs, breakeven level, etc.)

 

 Then, analyze the elasticity of demand to price. It is a less exhaustive study than that carried out in the market-based method: a microeconomic analysis based on past experience or recent outside data more than a deep marketing survey

 
After these 2 analyses, you can set up a range of potential price levels leading to  scenarios of sales volumes, of revenue associated with these volumes and of margins/contributions (sales less variable costs).

 

At this point, you need to choose among the different alternatives. You should operate a screening based on the following criteria, in the following order :

 

1. What are the solutions that best meet the profitability objectives? 

2. What are those that best respect the volume constraints? 

3. What are those that are most consistent with the positioning of the value proposition ?