Page 125 - Marketing the Basics 2nd

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for competitors to compete profitably; spend that extra money on brand building and other marketing activities to differentiate your product from competitors; or just be more profitable. Once the competition has caught up, the firm should reassess the strategic importance of the business.
ANALYSING COMPETITORS’ COSTS, PRICES AND OFFERS TO POSITION THE PRODUCT
By this stage, the price of the product is beginning to take shape: the demand curve provides an insight as to the market’s responsiveness to different prices, and the optimal cost structure is determined. At this stage, the product should be evaluated against the competition using a balanced scorecard. By comparing the competitor’s product offering, which includes price and features, the appropriate price range is clear, enabling the firm to move to Step 5, which is selecting the appropriate price method.
STEP 5. SELECTING A PRICE METHOD
There are wide ranges of pricing methods available to the firm, each with their own advantages and disadvantages. We discuss a number of them:
MARK-UP PRICING
A mark-up pricing scheme entails adding a mark-up over the cost of producing one unit. This pricing method is widely used by manu- facturers of mass merchandise and professionals working in service industries. Below is an example of how mark-up pricing works.
Let us suppose a mid-career manager inherits a million dollars from a beloved aunt who happened to be a shrewd investor. The inheritance is enough start-up capital to buy all the necessary equipment to open up a high-scale restaurant, the mid-career manager’s dream job.
Because our restaurateur has some managerial expertise, she knows the business is risky, and believes a rate of return of 30 per cent will adequately compensate her for her troubles. Her cost structure is as follows: