Seasonality is the variation in demand / supply of some product or service according to the time of year. It is a very special factor when it comes to business management and pricing of products and services, because it brings new operational challenges and also opportunities for gains.
See also: Complete guide on how to price
What is Pricing?
The activity of pricing or pricing 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.
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How to Price Based on Seasonality
Seasonality is nothing more than a significant and lasting change (not to be confused with small changes in behavior) in the supply and demand forces of a given product and service. Before entering into pricing as a whole, let's recall the 5 classic pricing steps:
- Cost Raising
- Point of Equilibrium Analysis
- Business Model Definition
- Competition Analysis
- Positioning and Strategy
Unlike the other pricing methods (demand, costs, mercado, value), which has as a characteristic deepening in one of the stages of pricing, in the seasonality, you will have to practically redo your pricing in full.
This does not mean doing zero, but reviewing all the points to see what has actually changed and how you can take advantage of that change in your favor.
Example of Seasonality
Now imagine that you have a small ice cream industry and that it is coming the summer, typical period of increased sales. And, so far, you had the following pricing data in "normal" months.
- Raw material: R $ 4,00 per liter
- Labor: R $ 6 per liter
- Salesmen's charge: 5%
- Monthly sales volume: 1000 liters
- Sell Price: R $ 20
- Sales margin: R $ 9,00
With the arrival of summer, you know that your demand doubles, but you have no way to produce more than 1.000 liters. Knowing that competition on average raises the price in 20%, but that they have a bigger production, you increase your price by 30%, reaching R $ 26,00 per liter of your ice cream!
Problems in Shaping Your Price Based on Seasonality
Of course the above example is simple and that to arrive at an assertive price it is necessary to make different tests and keep the company in constant contact with the market. Therefore, we will list some of the challenges of this type of pricing:
- Double work: You will always have to keep in mind two distinct prices for the low and high period of seasonality. In some cases, this is so radical that some companies close their doors during downturns to save money.
- Double Communication: You have to be very attentive to your company's communication channels, as customers may be frustrated if they are told the wrong prices and give up buying.
- Hit the price: Until you get the right price, you should do some testing. Of course the competition can give you a general level, but the environment can change and disturb you. For example, how much a colder summer would affect your ice cream sales?
- Fickle Cash Flow: In a broader scope of management, companies that have aggressive seasonalities experience great challenges to maintain a steady cash flow, as they end up spending more than the right amount in the high season.
Seasonal pricing is a special category because it brings many challenges and also opportunities for business gains. If your company fits into this profile, the care and work in terms of pricing needs to be redoubled. In case you want to deepen your pricing method, do not forget to know our ready-made spreadsheets!