“Pricing for profits” 

The price achieved for product sold determines business profits.  

Too cheap a price and at worst the business may not earn enough to survive. At best profits will not be as good as they could be. Too high a price and the product might not sell at all. So how do  marketing aware farmers obtain the best possible price for their products?

Regardless of what is sold and to whom, the first step for all producers is to fully understand the cost of production. This means knowing both  variable and fixed costs, variable costs being those which change according to the amount produced, and  fixed costs being the costs which have to be covered regardless of output.  

Examples of fixed costs are rent, rates, electricity, telephone, wages – and the farmer’s time. Farmers seem to be very reluctant to cost in their own time. Unless costs are known it is difficult to assess whether the price received is sufficient to make an acceptable profit or whether a change in strategy is required.  

The second step is to try and move on a stage from selling a commodity product with minimum added value. Farmers who have found a way to differentiate their products, whether through quality, service, breed or variety tend to receive a higher price than those who have not differentiated in any way. 

A further step is to consider selling direct, either to a retailer or catering outlet or to the general public.  

Undoubtedly the closer farmers move to selling products to the end consumer the more potential there is to set prices as opposed to accept them. And the more added value that the farmer delivers the higher the price they are likely to achieve.

 Farmers interested in direct selling, whatever the product in question, have a number of factors to consider before setting the price. Market positioning is key. When selling a premium product it can be damaging to price it too cheaply as consumers may assume there is something wrong with it. The temptation to price low “to be on the safe side” should be resisted.

The price at which competitors are selling should also be taken into account, to avoid pricing a product too far out of line. 

The most important factor to consider when setting a price is the degree to which a product offers features and benefits which are seen by consumers as different from and better than competition. In a nutshell, the more benefits the product offers in relation to competition the higher the price which can be charged.  

 Market research helps identify which benefits consumers find relevant. Again though a word of caution. Whilst research can provide a good steer on what consumers like about a product, it can only provide a guide to pricing as most consumers simply don’t know off the top of their head how much something costs. In the real world their decision to buy a product is based on many factors which are not possible to replicate in research. Ultimately the farmer has to use his judgement to set prices. 

It is best to avoid launching the product at a low price in the hope that it will be possible to put the price up once it is established. It is difficult to raise prices substantially after launch. Either consumers will resent paying the higher price, or competitors will have reduced price to protect their sales, or if selling through a third party such as a retailer they might refuse to put the price up. Prices can always be reduced post launch if it becomes clear that they have been set too high. 

It is legitimate to use short term measures to encourage purchase such as an introductory offer, a money off coupon, or a cost saving benefit such as free delivery. 

Think about rewarding regular customers, particularly those who buy a lot of the product, with a better price. It is far more profitable in the long run to have a loyal customer base who buy often than it is to spend marketing money trying to recruit new customers who may or may not stay loyal in the long term. 

Finally, given the influence that pricing has on profits, it is suggested that all producers, whether or not they are selling direct, should review pricing regularly in the light of cost changes, changes in the market place, or because a new updated version of a product has been introduced either by themselves or by competitors.