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1.9 Pricing

This week will focus on the business plan itself, including its formulation, implementation, and control.

International Business Capstone

University of London

Course 6 of 6 in the International Business Essentials Specialization

The Capstone project is the culmination of the International Business Essentials specialisation, and brings together knowledge gained in the previous courses and applies this to a real-world scenario. Throughout the Capstone, you’ll be taught new skills, and will use the knowledge you have gained throughout the Specialisation to develop a business plan. This course forms part of a specialisation from the University of London designed to help you develop and build the essential business, academic, and cultural skills necessary to succeed in international business, or in further study. If completed successfully, your certificate from this specialisation can also be used as part of the application process for the University of London Global MBA programme, particularly for early career applicants. If you would like more information about the Global MBA, please visit https://mba.london.ac.uk/. This course is endorsed by CMI

Taught By

Barry McCarthy
Senior Teaching Fellow

Transcript

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I'm now going to talk to you a little bit about pricing.

Expand a little bit more on the pricing that I introduced earlier on.

I think it's important that you explain, within the plan,

your method or methods of setting prices.

Now, for most small businesses,

having the lowest prices is not particularly a good policy.

It's difficult for you to sustain that and also you're competing with

larger competitors who may be able to take advantage of economies a scale.

It will rob you of the necessary profit margins that you need

to sustain your organization and your business, and

customers may not actually care as much as you think about pricing.

And, large competitors can always under-price you in the short term.

They might be able to sustain a short term hit, whereas you,

especially as a new business, will not be able to do that.

So usually, you'll do a lot better if you have average prices, and

compete on quality and service.

I think you also need to have an idea of whether your pricing strategy fits within

what was revealed within your competitive analysis.

So you need to maybe go back and look at that table and see,

where is it that your pricing fits somewhere in that table?

You need to compare your prices with those of the competition.

Are they higher, lower, the same?

It isn't just about saying this is what they are, but

it's important that you understand and prove that you understand,

within the plan itself, as to why they are different, or the same.

How important is price as a competitive factor?

Do your intended customers really make their purchase decisions

on the basis of price?

Once again, this goes back to having a better understanding of your customers,

and that can be gleaned through this customer analysis I mentioned earlier on.

What would be your customer service and credit policies?

That's also important, and it also impacts on the price.

The proposed location.

If you plan to sell your product in a high quality five-star hotel,

then you won't be expected to sell a product that is of low price.

So the proposed location is also important about your pricing policy.

It's probable that you may not have a precise location for your business, but

I think it's important that you think about where you

want that location to be in the future.

Many new businesses run successfully from home initially.

I will expect you to describe your physical needs later on,

that's particularly in the operational plan section,

which we'll deal with a little bit later on.

Here however, I think it's important just to have a brief analysis of your location

criteria at least, and what it is that's will impact on your customers.

I think the important thing is not just about your location and

how important it is to you, but how important it is to your customers.

If it is important, once again, the why,

you need to make sure that that's clearly stated within the plan.

If customers actually come to your place of business, is it convenient?

Does it has a parking area?

Is it out of the way?

Is it consistent with your image?

Is it what customers want and expect?

I think another key aspect of this is where the competition's sited.

Where are they located?

Is it better for you to be near them?

And you'll tend to find things that car dealers, and

fast food restaurants all tend to group together in certain areas.

Or is distance a key point?

If it's convenience store,

you don't really want to be sited right next to a large supermarket.

I think distribution channels are also a key point here.

In other words, how do you sell your product or service?

Is it through retail?

Is it direct, such as mail order, the Internet, through a catalogue, etc?

Are you going to be selling wholesale?

That's a key factor as well.

Do you plan to develop your own sales force, your own sales team?

What sort of training would they need?

Are you going to use agents, intermediaries in other words, or

even independent representatives to sell your products?

What about bidding on contracts?

What experience do you have if your particular product or

service is a contract that needs to be bid for?

All of this will lead you to ultimately predicting a sales forecast.

I think a key thing about a business plan, actually that's a good word,

forecast, is that it, by it's very nature, is predictive.

It's a forecast into the future.

And I think the sales forecast is probably one of the best places to start

that prediction.

Now you've described your product, services, customers, markets, and

marketing plans, it's time to attach some numbers to your plan.

And I think we'll start with potentially looking at a sales forecast.

A spreadsheet is the ideal medium to use here.

And I think it would be important to prepare a month-by-month projection

of your sales, at least for the next 12 months.

The forecast should be based upon your historical sales,

if you have them, the marketing strategies outlined previously,

and also your market research, industry data, if you have that available.

I think it's important when you're doing these forecasts, in particular with sales,

is to do two forecasts.

One is like a best guess, if you wish.

What is it that you think should happen?

Try not to be over optimistic here.

Of course, it's also worthwhile being a little bit pessimistic, and

maybe do a worst case scenario.

You'll actually find that most start-up businesses unfortunately fail within

the first 12 months, and a lot of that is down to them being a little bit

too optimistic when they're predicting their sales for the future.

So remember to keep notes on your research and your assumptions as

you complete this sales forecast and the subsequent spreadsheets that follow.

This is critical if you're going to present it to potential funding sources.

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