Defining a revenue model for your business will help you:
For example, Google offers targeted advertising solutions and global Internet search solutions. Its principal products and services. Therefore the revenue of Google is from "pay per click advertising program"
There are many outside influences that affect profitability and a retailer's bottom line. Setting the right price is a crucial step toward achieving that profit. Retailers are in business to make a profit, but figuring out what and how to price products may not come easily.
Before we can determine which retail pricing strategy to use in setting the right price, we must know the costs associated with the products. Two key elements in factoring product cost is the cost of goods and the amount of operating expense.
The cost of goods includes the amount paid for the product, plus any shipping or handling expenses. The cost of operating the business, or operating expense, includes overhead, payroll, marketing and office supplies.
Regardless of the pricing strategy used, the retail price of the products should more than cover the cost of obtaining the goods plus the expenses related to operating the business. A retailer simply cannot succeed in business if they continue to sell their products below cost.
Now that we understand what our products actually cost, we should look at how our competition is pricing their products. Retailers will also need to examine their channels of distribution and research what the market is willing to pay.
Many pricing strategies exist and each is used based on particular a set of circumstances. Here are a few of the more popular pricing strategies to consider:
Markup on cost can be calculated by adding a pre-set (often industry standard) profit margin, or percentage, to the cost of the merchandise.
Markup on retail is determined by dividing the dollar markup by retail.
Be sure to keep the initial mark-up high enough to cover price reductions, discounts, shrinkage and other anticipated expenses, and still achieve a satisfactory profit. Retailers with a varied product selection can use different mark-ups on each product line.
Manufacturer suggested retail price (MSRP) is a common strategy used by the smaller retail shops to avoid price wars and still maintain a decent profit. Some suppliers have minimum advertised prices but also suggest the retail pricing. By pricing products with the suggested retail prices supplied by the vendor, the retailer is out of the decision-making process. Another issue with using pre-set prices is that it doesn't allow a retailer to have an advantage over the competition.
Consumers have many choices and are generally willing to shop around to receive the best price. Retailers considering a competitive pricing strategy will need to provide outstanding customer service to stand above the competition.
Pricing below competition simply means pricing products lower than the competitor's price. This strategy works well if the retailer negotiates the best prices, reduces costs and develops a marketing strategy to focus on price specials.
Prestige pricing, or pricing above competition, may be considered when location, exclusivity or unique customer service can justify higher prices. Retailers that stock high-quality merchandise that isn't available at any other location may be quite successful in pricing their products above competitors.
Psychological pricing is used when prices are set to a certain level where the consumer perceives the price to be fair. The most common method is odd-pricing using figures that end in 5, 7 or 9. It is believed that consumers tend to round down a price of $9.95 to $9, rather than $10.
Keystone pricing is not used as often as it once was. Doubling the cost paid for merchandise was once the rule of pricing products, but very few products these days allow a retailer to keystone the product price.
Multiple pricing is a method which involves selling more than one product for one price, such as three items for $1.00. Not only is this strategy great for markdowns or sales events, but retailers have noticed consumers tend to purchase in larger amounts where the multiple pricing strategy is used.
Discount pricing and price reductions are a natural part of retailing. Discounting can include coupons, rebates, seasonal prices and other promotional markdowns.
Merchandise priced below cost is referred to as loss leaders. Although retailers make no profit on these discounted items, the hope is consumers will purchase other products at higher margins during their visit to the store.
As you develop the best pricing model for your retail business, understand the ideal pricing strategy will depend on more than costs. It also depends on good pricing practices.
It is difficult to say which component of pricing is more important than another. Just keep in mind, the right product price is the price the consumer is willing to pay, while providing a profit to the retailer.
Traditional marketing strategy consists of three components, known as the “three C’s”:
Analyze the Competition
Of the three C’s, the competitor analysis may give you the toughest time, especially if you are new to the marketplace. First, you should look at your direct competitors. Take, for example, a McDonald’s restaurant in a busy downtown area. Its direct competitors would be any nearby Burger King or Wendy’s restaurants. Its indirect competitors would be other restaurants in the same downtown area, even upscale ones. Customers eat lunch just once a day, and all these restaurants are fighting for this finite group of customers.
Examine any substitutes. Instead of going out for lunch, some people may opt to bring lunch from home, or skip lunch entirely. These are both factors McDonald’s would need to examine when analyzing a location’s competitive position.
Assess the Marketplace
Once you’ve identified your direct and indirect rivals, as well as substitute competitors, you’ll want to gauge your potential fit in the marketplace. Some issues to consider:
After you have addressed the three C’s, you can move on to developing a marketing program, which involves analyzing “the four P’s,” collectively known as the marketing mix:
You’re now ready for the final phase of your marketing analysis – crafting a market development plan. The information you provide here likely won’t come into play until you’ve established your company and have been running for a few years, but investors will find it helpful to see how you envision your company evolving. Your market development plan should address such questions as:
These marketing and competitive analyses are vital parts of your business plan and will likely be the most extensive portion of it. Take the time to do thorough research on your competitors and how the market has behaved in recent years. A disorganized marketing strategy can ruin even the best of products, simply because your target customers will never hear of them.
Christine & Denis Landscapes Limited has been in the lawn care business in Sherbrooke for four years and has a history of profitability. However, since the nature of the landscaping business is seasonal, we are interested in expanding our company into snow removal and making it a year-round operation. We will offer our services to our existing residential and commercial clients.
As a northern country, Canada has always had a need for snow removal services during the winter. With the average person working longer hours and juggling more leisure activities than ever before, the need for professional snow removal services have increased in the residential sector. Similarly, as the number of small businesses with limited staffs continue to increase, more professional snow removal services are being used by these businesses as an alternative to bringing maintenance people in house. And, with new policies being implemented to fine people and businesses who fail to clear their property of snow hazards in the wintertime, market research indicates that snow removal services will enjoy a growth rate of approximately 4 per cent per year for the next five years.
On a local level, the city of Sherbrooke has recently voted to contract out $1.5 million in snow removal services.
Sectors Within Industry
Seasonal Factors
Snow removal is extremely sensitive to seasonal factors. A winter with a particularly heavy snowfall would result in an increase in demand for snow removal services; conversely, a mild winter would be potentially devastating to a snow removal company depending on the way its contracts are structured. However, Sherbrooke weather patterns for the last ten years have been extremely stable and the average snowfall from year to year doesn't vary more than 15 per cent.
Consumer Trends
With the risk of a substantial fine from the municipal government for failure to remove snow within 12 hours of a snowfall, residential use of snow removal services has increased by 16 per cent over the last five years. Similarly, with lawsuits stemming from property negligence on the rise, local businesses are 54 per cent more likely to contract out snow removal services than ten years ago.
Having been in the lawn care business for four years, we have established a strong reputation for ourselves in the Sherbrooke community with both business and residential customers. We are known for offering friendly and competitively priced service and enjoy a high rate of referral business. Of our more than 300 customers, the vast majority have expressed a commitment to using our snow removal services once they are fully functional.
Competition
There are currently a total of eight snow removal services in the Sherbrooke area. The two largest services Au revoir Neige and Gilles Délétang et fils Ltée currently control 80 per cent of the local market. These companies are well established and have both been in business for more than ten years. The remaining 20 per cent is currently split between six smaller contractors.
Although other contractors may try to cash in on the city's decision to contract out snow removal, Christine & Denis Landscapes Limited is in a particularly favourable position. We have built up relationships with clients in both the residential and business sectors as well as the municipal government over the last four years; therefore, we are in an excellent position not only to win contracts from the government, but also from private sectors and residential customers.
Use of Technology
We plan to make use of our computerized database, compiled during our four years in the landscape business, to market our snow removal services to existing clients. This will be an advantage over a number of our competitors who do not use a database, since it will allow us to track services rendered for customers and to send out direct mail offers to them to solicit further business.
The Canadian pet industry has grown from a value of about $3.5 billion in 2001 to $4.5 billion in 2007. Statistics Canada reports that pet owners spent an average of $770 on pet-related expenses in 2006, compared to $377 in 2005.
These figures reflect the increasing humanization of pets, a trend that is showing no signs of waning. More and more people consider their pets to be people, too, and treat them accordingly. Karen McCullough, director of marketing for Winnipeg-based Petland Canada, which operates both company-owned and franchise stores across the country, says, "People are looking for more these days - absolutely. We see a lot now in higher-end products, people are demanding more for their pets, from treats to grooming supplies to brand-name toys and even clothing."
And, because people want the best for their pets, there is also an increasing demand for pet-care services. Across Canada the pet care business has seen an explosion of growth over the last three years.
West Vancouver is an affluent area with a high pet density, an ideal market for a pet-sitting business such as Pet Grandma. People in this area not only have pets, but can afford to spend money on them and are willing to do so.
Our market research has shown that 9 out of 10 pet owners polled in West Vancouver would prefer to have their pets cared for in their own homes when they travel rather than be kenneled and 6 out of 10 would consider having a pet sitter provide company for their dog when they were at work.
While there are currently eight businesses offering pet sitting in West Vancouver, only three of these offer on-site pet care and none offers Pet Visit services for working pet owners.
Currently there is no one company dominating the market. This may be because all of the pet-sitting businesses are relatively new; the oldest, Paula's Pet Sitting, has been in business five years. However, half of the existing pet-sitting businesses control the majority of the market; Paula's Pet Sitting, Doggie Care Services Inc., Pet Petters and Pet Sitters on Demand together control 65 percent of the market.
Pet Grandma's marketing strategy is to emphasize the quality of pet care we provide As our slogan, "A Grandma for your pet!" says, we treat people's pets as family members and strive to give people’s pets the same loving individual care that they would give. We will be emphasizing the quality and personalized service we provide in our marketing.
We will also offer some services that are currently unique, such as our Pet Visit services, where one of our trained staff will go to a person's home while they're at work and feed, exercise and play with their pet, allowing dog owners who work to come home to happy, friendly companions rather than demanding, whiny animals.
The knowledge being central for business agility and innovation is a multifaceted phenomenon. An economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies such as knowledge engineering and knowledge management to produce economic benefits which has to be considered from various perspectives observers describe today's global economy as one in transition to a knowledge economy, as an extension of an information society. The transition requires that the rules and practices that determined success in the industrial economy need rewriting in an interconnected, globalize economy where knowledge resources such as know-how and expertise are as critical as other economic resources. According to analysts of the knowledge economy, these rules need to be rewritten at the levels of firms and industries in terms of knowledge management and at the level of public policy as knowledge policy or knowledge-related policy. In the other words knowledge base economy is the essence of the firms is its ability to create, transfer, assemble, integrate, and exploit knowledge asset. Knowledge assets underpin competence and competencies in turn underpin the firm’s product and services offering to the markets.
