Published on: **Mar 4, 2016**

- 1. PRICING ANDCOSTINGBY MARIA, CHRISTIAN AND HARSH
- 2. FLOW OF PRESENTATION1. Current Pricing Strategy2. Different Costs3. Calculations4. Cost Based Pricing Solution5. Other Pricing Strategies6. 1 million Rands7. Questions
- 3. CURRENT PRODUCT & PRICES• Key Rings – R 25• Midi Poppies – R 60• Maxi Poppies - R 115
- 4. WHAT IS THE CURRENT PRICINGMODEL?• Cost Based Pricing• Example Midi dolls – R 60 (wholesale price) you bought them for 90• How this price is decided• R 9 for material + R 25.5 labour + 30% Overhead + 33 % Mark Up = R 60• So the cost pricing is dependent on three components – fixed costs (overheads) + Variable Cost (material + Labour) + Mark up (profit)• According to this model Shwe-Shwe should be profitable ?
- 5. VARIABLE COSTS• Materials• Labor Charges• Easy to Calculate?• Increase in material costs• Inflation• So do we account for inflation every year and keep changing the price?
- 6. FIXED COST• Very important to cover all the fixed costs example water, electricity, own salary, insurance, telephone, etc.• Division of Fixed cost = X Rands• Say production = 500 Midis
- 7. FIXED COSTS• Therefore Overhead per Midi = X/500 Rands (which we assume is 30% overhead cost)• Another month production = 300 Midis• Therefore only 60 % of the overhead will be covered ( 300 * X/500)• So the overhead needs to be distributed among lowest production of poppies
- 8. MARK UP• How should mark up be calculated?• Amount of profit which Shwe-Shwe wants to invest• Profit = Pay-back + Retention• Therefore, Shwe-Shwe needs to decide how much money it wants to invest in the business without rocketing the selling price
- 9. WHAT ARE THE COSTSAccording to the financials and information given by Wandile : Variable costs Maxi doll Midi doll Key ring Labor costs 36.5 25.5 11.2 Material 32.5 9 4 Total 69 34.5 15.2
- 10. WHAT ARE THE COSTSAccording to the financials and information given by Wandile : 2008 2009 2010 2011Operating 18199 61083 49392 73356expenses:Bank Charges 2939 3624 3811 5032Accounting Fees 0 0 3990 16405Insurance 0 0 3993 7578Telephone and Fax 0 0 6253 3348Computer Expenses 0 0 0 0Donations 5000 50000 17500 0General Expenses 2731 0 13400 38307Travel - Local 7529 7459 445 2686
- 11. WHAT ARE THE COSTSOur assumptions : 2010 2011 2012Operating Operating 49392 73356expenses: expenses: 101500Bank Charges 3811 5032 Bank Charges 5000Accounting Fees 3990 16405 Accounting Fees 16000Insurance 3993 7578 Insurance 7500Telephone and Fax 6253 3348 Telephone and Fax 5000Computer Expenses 0 0 Salary Wandile 36000Donations 17500 0 Electricity + water 9000General Expenses 13400 38307 Internet 5000Travel - Local 445 2686 Transports 15000 Travel - Local 3000
- 12. HOW TO FIND THE RIGHT PRICE• According to Wandile : bad month 200 items sold, good month 500-800 items sold• Calculation of the overhead : conservative approach to avoid under allocation of the costs. We choose 350 items sold per month, 4200 per year• Revenue projections are: Key rings 2.5%, Maxi dolls 20% and Midi dolls 65%• Formula : 101’500/4’200/(69*20%+34.5*65%+15.2*3%)=65% overhead• Add inflation of 6% over 3 years, this is about 20% price increase at the end of the 3 rd year, average during the 3 years is 9%• Markup: 30%, includes variable salary for Wandile, profits to finance growth, money going back to stakeholders
- 13. HOW TO FIND THE RIGHT PRICE Variable costs Maxi doll Midi doll Key ringsLabor costs 36.5 25.5 11.2Material 32.5 9 4Total 69 34.5 15.2Overhead 65% 113.85 56.93 25.083 year inflation 9% 124.10 62.05 25.08Markup 30% 161.33 80.66 35.54Old prices 115 60 25New Prices 160 80 35 Price increase 39% 33% 40%
- 14. PRICING MODEL
- 15. PRICING OBJECTIVES Competitive Profit Survival Product quality Pricing Return on investment Objectives Status quo Market Share Cash Flow
- 16. PRICING MODELPrice objective: profitsType of product: toy / souvenir / decorationTarget market: middle/upper class tourists, mostly women 25+ years old and corporates
- 17. PRICING BASIS Competition SA MARKET Customer Cost
- 18. WOO-MENPRICING BASIS 200R Competition EUROPEAN MARKET • Market • Demand • Willingness to pay Customer Cost
- 19. PRICING STRATEGIESDifferential pricing: different prices to different buyersfor the same product (European market)New markets: price skimming (New markets)Promotional pricing: special event pricing (SouthAfrica)
- 20. 1 MILLION RAND FOR 3 YEARS• Objective: Increasing demand and capacity enhancement• Per year approx.: • 50 000 Market & exhibition stalls • 20 000 More in accounting services • 25 000 Increasing corporate sales • 85 000 Marketing & Sales Executive • 50 000 Print media publicity • 20 000 Online Sales • 100 000 Capacity enhancement
- 21. Thank you!Questions?