Building Your Marketing Plan - Essay Example

Pricing is one of the key aspects of ensuring that the business earns enough to survive and provide a return to the shareholders. Prices which are adequately set therefore are considered as one of the key for providing competitive advantage to the firms. Pricing therefore is the key element in determining the overall profitability of the firm and how it is going to survive through the competition. The overall pricing mechanism works according to the dynamics of demand and supply where the prices keep on changing according to the demand for the product.

Thus regardless of what the prices are, the final price is always determined by the demand and supply dynamics faced by a firm. Pricing decisions therefore are critical in the sense that it can help organization to actually determine how much to produce and what level of units or quantities to target. Such importance of pricing therefore can allow an organization to actually determine the level of sales in units as well as in monetary terms the value required to reach a point where a firm starts to earn revenue.

As such, there are different assumptions made by the firms to arrive at a price which is considered as just right. Further, the breakeven point is the beyond which a firm actually starts to make a profit. As such, it is important for our firm to first target that level of revenue and quantity which can bring us to the point beyond which we can start earning profit. To arrive at a price, there are different approaches which a firm can adapt actually to arrive at a right price. These approaches include demand-oriented, cost-oriented and competition oriented.

(Phillips, 2006). Under these assumptions, a firm can actually take different perspectives to determine the price based upon typical factors faced by that firm. Since we will be in food business therefore our approach will be focused upon determining the right approach which can help us to set the right price. We therefore strive to achieve accuracy and precision in determining the right price which can make us profitable in near future. It is also critical to understand that once accuracy and precision is achieved in determining the prices, these approaches should be applied consistently.

The consistent application of the different pricing approaches therefore can really set the firm distinguished from the competition in the industry. Assumptions One of the key assumptions to be made hereunder is based upon the notion of adapting average costing and average pricing. The average cost in the industry and the average prices charged in the industry will be the yardsticks based upon which final prices will be determined besides calculating the break-even point. Break Even Since we will be offering a diversified menu therefore it may be relatively difficult to arrive at a single break-even point.

Break-even point for either on the menu based or on an average based pricing will be our basis. Based on the assumptions made, we assume that we will be incurring a fixed cost of $100,000 per year which will include selling and admin costs, equipment costs, loan payments, depreciation and etc. Average price per meal assumed to be $10 whereas there will be a unit variable cost of $5. Considering above assumptions, following calculations can be worked out: BEP = [FC ? (P – UVC)] BEPunits = [100,000 ? (10-5) = 20,000 meals per year for Break-Even BEPr = 20,000 x 10 = $200,000/- In order to break-even, restaurant must be selling 20,000 meals per year and earn a revenue of $200,000 per year.

This will be the point where our business will be neither in loss and nor in profit but will be focused upon earning sufficient amount to achieve a revenue level of $200,000. However, if prices are reduced to $8, calculations will look like this, BEP = [FC ? (P – UVC)] = 100,000 / (8-5) = 33,334 meals per year = 33,334 x 8 = 266,672/- These calculations suggest that by lowering the prices to $8, we have to sell higher number of meals to achieve a break-even point. Since industry average is assumed to be $10 therefore this price seems to be a right price to offer our products.

Different items in our menu therefore will be based upon this average price of $10, however, prices may keep on changing due to certain specific factors. Final Pricing Considering that a $10 average price will help us to break-even, at a 40% margin level, the final price will be $14 per meal on the average. References Phillips, R. (2006). Pricing and Revenue Optimization. Stanford University Press.