Demand-Based Pricing

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The art of pricing can also be analyzed from the economic point of view. That is, the best price is that maximum value where supply and demand equals perfectly. A simple case, you say you have 5 popsicles to sell and 10 children as customers. Each child is willing to pay a real extra than the previous child:

• 1 child: pays \$ 1,00 on the popsicle
• 2 Child: pays \$ 2,00
• 3 Child: \$ 3,00

So on ... In this simple case, its selling price should be R \$ 5,00. Thus, you will sell to the child 10 up to 5 and invoice as much as possible within that market. Being that some children would not be able to pay and others would even be willing to pay more!

See also: Quick guide on how to price

What is Pricing?

The activity of set sale price involves defining mathematical and also strategically, viable pricing and the method of charging for your products or services. In general, the issues involving pricing are fixed costs, variable costs, definition of contribution margin e point of equilibrium, competition analysis and positioning.

How to Price Based on Demand?

Pricing based on demand is intended to optimize the price of a product or service to keep pace with variations in demand or even stimulate these variations. Before we see exactly how it works, let's recall the 5 classic steps of price formation:

1. Cost Raising
2. Point of Equilibrium Analysis
3. Business Model Definition
4. Competition Analysis
5. Positioning and Strategy

When you're focused on this type of pricing, you'll delve deeper into the 2 point, while others, while still having their share, will serve more as support for fine-tuning. Let's look at some situations in which pricing is affected by demand.

Coletive shopping

This type of model has turned a fever in the past and although it has declined it still exists. In this model, establishments tend to give aggressive discounts on their prices, so that a certain demand is guaranteed.

Retail vs. Wholesale

Another classic way of pricing from demand is to create different price ranges according to the purchase. Something also very common in industries. Something of the type up 1000 units, X price; up to 10000, X / 2 price, and so on. This encourages your customers to buy more to have larger margins and also assures you a favorable apportionment between fixed and variable costs for your business.

Mini-Seasonality

We will not call it seasonality, as it is not something that changes according to the seasons of the year itself, but there are some behaviors that can be availed according to the demand that optimize its price. For example, in the city of São Paulo, hotels are cheaper at the weekend, in Rio de Janeiro, it's the opposite. In both cities, hotel managers are making good decisions to sell as much as possible.

Problems in Price-Based Demand

It is certain that every business has to take into consideration the demand for the pricing of your product or service. However, there are others who rely more on this type of mechanism to hit their price more dynamically. However, there are a few things to keep in mind:

1. Maintain transparency: one can not be confused with using the demand as a basis, with pricing according to the client's face. This does not mean charging more than who seems to be able to pay more and vice versa. Therefore, it is important to keep your pricing policy transparent and uniform.
2. "Measuring" demand is complex: In some cases, it is not easy to see that there is a variation in demand already installed or the opportunity to encourage this behavior. Therefore, it is important to keep management close to its indicators to perceive changes in behavior.
3. Keep your break-even analysis up to date: Although the demand dictates the price, one can not forget the costs that have already been incurred in certain offers. So sometimes you may end up losing opportunities.

Conclusion

All price formation observes the demand. However, in some businesses this type of method will allow you to optimize your price and increase your earnings in different trading opportunities or behaviors to be explored. If you are in the process of pricing your product or service, be sure to test our ready-made spreadsheets!

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Leandro started his professional life consulting hundreds of small companies throughout Brazil and was a professor at institutions such as SEBRAE, Vale, Souza Cruz, FIRJAN, COPPE and FGV. Today, it is enchanted by the facilities that Excel brings to business management and wants to bring this wonder to Brazil and the World!