Question

Write a 1 page recommendation for the pricing strategy necessary to successfully market your health care product or service. Be sure to include an estimate of the costs associated with the product or service, and the profits that are expected with the recommended pricing. You will need to make some “educated estimates” to complete this assignment; please follow a format like this to demonstrate that your recommended pricing will result in profits: New Product Per Unit 20,000 units (1st year sales forecast) Suggested retail price $100.00 $2,000,000 Cost to retailer ** $50.00 $1,000,000 Retailer margin $50.00 $1,000,000 Cost of Goods Sold Components/raw materials $10.00 $200,000 Labor $10.00 $200,000 Overhead $5.00 $100,000 Marketing costs $7.00 $140,000 Manufacturer profit $18.00 $360,000 ** “Cost to retailer” is the same as Manufacturer’s sales revenue New Service Per Day 200 days per year (1st year sales forecast) Service Charges** $250.00 $500,000 Cost of Goods Sold Labor $100.00 $200,000 Materials $20.00 $40,000 Overhead $30.00 $60,000 Marketing costs $10.00 $20,000 Service provider profit $90.00 $180,000 ** Service Charge is the expected sales revenue from the new service As a starting point to estimating costs, visit Bplans and search for a sample plan in a similar line of business to the one you are proposing. Look for the “Pro Forma Profit and Loss” chart within the Financial Plan section of the business plan, and make note of the expected costs in relation to forecasted sales. You can also do an Internet search for “income statement – (insert your product or service here)” and review the samples that you find. Within this section draft, please demonstrate your grasp of the marketing terminology and concepts related to pricing strategy. For example, it would be appropriate to identify whether you have chosen a penetration, skimming, or followership price strategy, and why you believe that strategy is appropriate.

Answer 1

Good Pricing strategy helps you determine the price point at which you can maximize profits on sale of your products or services. When setting prices, a business owner need to consider a wide range of factors including production and distribution cost, competitor offerings, positioning strategies and the business target customer base.

While Customer dont purchase goods that are priced too high, your company won't succeed if it prices goods too low to cover all of the business cost. Along with product, place and promotion, price can have a profound effect on the success of your small business.

Followings are some of the Pricing strategies that you can use for pricing of your products.

1. Pricing at Premium

2. Penetration Pricing

3. Economy Pricing

4. Skimming Pricing Strategy

5. Psychology Pricing

6. Bundle Pricing

Income Statement for Health Care Product
Unit Sale Forecast units		20000
Particulars	Unit Price Per unit	Total
Sales	100	2000000
Less Cost:
Cost of Goods Sold	10	200000
Labour	10	200000
Overhead	5	100000
Marketing Cost	7	140000
Manufacturers Profit	18	360000
Cost To Retailer	50	1000000
Profit of Retailer	50	1000000
Income Statement for Health Care Service
Particulars	Unit Price Per unit	Total
Income
Service Charge	250	500000
Cost:
Cost of Sold Labour	100	200000
Material	20	40000
Overhead	30	60000
Marketing Cost	10	20000
Total Cost	160	320000
Service Provider Profit	90	180000

Pricing Strategy to use

Penetration:- Penetration strategies aim to attract buyer by offering lower prices on goods and services. While many new companies use this technique to draw attention away from their competition, penetration pricing does tend to result in an initial loss of income for the business.

Over time, however, the increase in awareness can drive profits and help small businesses to stand out from the crowd. In the long run, after sufficiently penetrating a market, companies can wind up raising their prices to better reflect the state of their position within the market.

Skimming: Designed to help businesses maximize sales on new product and services, price skimming involves setting rates high during the introductory phase. The company then lowers prices gradually as competitor goods appear on the market.

One of the benefits of price skimming is that it allows businesses to maximize profits on early adopters before dropping prices  to attract more price - sensitive consumers Not only does price skimming help a small business recoup its development costs, but it also creates an illusion of quality and exclusivity when your item is first introduced to the marketplace.

Followership: Followership pricing strategy is competitive pricing strategy, in which a businesses matches the prices and services of the market leader.

Followership pricing may force the business to continually adjust its pricing, especially if the market leader counters this strategy by continually raising and lowering prices. This can lead to price war.

A followership pricing strategy is most suitable for the larger companies with the economies of scale to achieve low unit cost and compete on price and is commonly found in oligopolistic sector, in which the market is shared by a small number of producers or sellers, such as big box retailers or grocery chains.

Because small businesses and start ups typically have higher cost and lower margin than bigger businesses they may be unable to compete with the industry leaders on price. Instead they have to use service and other offerings to differentiate themselves. Followership pricing is an alternative to more strategies for entering new markets, increasing market share  or defending markets from new entrants.

As explanation provided above in the mentioned case Skiiming pricing startegy is the best