Product Pricing

Table of Contents

Calculation

The cost of manufacturing the t-shirts is $12.25 per unit. Retail price= cost ÷ (1-desired return on investment) = 12.25% ÷ (1-0.18) = $ 17.

Other costs: internet, $0.1, shipping, $3, and packaging, $0.035.

Total Costs=$3+$0.1+$0.035+$12.25=$15.385

The price per unit of t-shirt = $17+ $15.385= $32.385

Revenue= Price × Units= 2000 units × $32.385= $64,770

Profit= $ 64,770 – (2000 × $15.385) = $64,770 – $30,770 = $34,000

Selling 1,000 units gives a profit of (1000×$32.385) – (1000 × $15.385).

$32,385-$15,385 =$17,000

Selling 1000 units may require adjustment in price because profit reduces with a reduction in unit sales.

Rationale

Pricing a product requires the determination of certain market determinants: significance of price to the producer, price objectives, product demand, and estimate of costs (Lamb, Hair, & McDaniel, 2009).

Step 1: Significance of Price.

Price is the source of revenue and by extension profit. The custom-branded t-shirts are the primary source of profit to the manufacturer (Revenue= Price × Units).

Step 2: Price Objectives.

Custom-printed t-shirts are new in the market, and; therefore, the objective is to create its position in the market. The product should take the least price in the market.

Step 3: Demand Determinant.

Distribution, quality, and promotion strategies are factors that influence price. The customized t-shirts sell on the internet so as to reach a wider mass of people.

Step 4: Cost Determinant.

Variable and fixed costs have an influence on price. They are vital factors that influence the determination of the product’s price. There is a variety of costs, associated with production, that fall under the categories.

Reference

Lamb, G., Hair, J. & McDaniel, G. (2009). “Marketing”. Mason, OH: Cengage.

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