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Pricing Strategy and Revenue Projection

PricingStrategy and Revenue Projection

PricingStrategy and Revenue Projection

Pricingis the process through which a business owner determines theappropriate price of the product/service offered. According to Grant(2016),in the current highly competitive markets, it is important for anybusiness to take into consideration various factors such as expectedsales growth, market share, competition among others when pricing itsproducts or services. I have chosen competition pricing strategy formy cupcake business to maximize sales and profit. Moreover, some ofmy business objectives are to increase market share with time andearn customer loyalty hence the need to choose a pricing strategy,where prices are not too low or too high (Martin, 2015). I havechosen this particular trajectory of sales/revenue and pricingbecause I believe it will enable my business win confidence of thetarget market. According to Fuller(2016), food products require a pricing strategy that is not too highor too low compared to the competitors’ pricing strategies topenetrate the target market and win confidence from the customers. Ibelieve that by establishing appropriate pricing policies for mycupcakes, I will maintain and even strengthen the confidence of thecustomers in my business.

Beforesetting the price for my product, I will perform a market analysis,positioning, segmentation, and demand analysis. Moreover, I willcalculate the variable and fixed costs to determine the best point tocharge for the goods. The food industry is highly influenced by thedecisions of the manufacturers and the cost of production thus,competitors and expenses incurred in producing the cupcakes willextensively affect the prices charged. Fuller(2016) posits thatfirms should utilize a competition pricing strategy in the foodindustry given the level of rivalry, presence of substitutes andcomplementary goods, and high similarity aspect of the products. Inthis regards, I will adopt a cost-based strategy by considering costsand market conditions in setting the price since the prices ofcupcakes will regularly change over the 5 year period. Additionally,I will use the competition approach by matching my prices to those ofthe rivals. However, my product’s price is slightly higher comparedto the competitors in the market. I have invested in improving thequality of my cupcakes to be a superior brand compared to mycompetitors to ensure the customer will not hesitate in paying alittle more for a better quality and experience. Over the five-yearperiod of my plan, I expect the prices to increase. This is because,with time, my business will have gained a large market share andearned customer loyalty and trust. Since the business will focus onimproving the quality of the product offered, customers will bewilling to pay more for an improving and the best cupcakes in themarket. Moreover, by increasing the prices, I aim to make moreprofits and take home sensible rate of return on investment.

Thefollowing figure shows the revenue projection for the cupcakes. Theprojection is determined by

Figure1:

Revenueand margin projections (5 years)

Year 1

Year 2

Year 3

Year 4

Year 5

Price per unit

$0.57

$0.73

$0.87

$0.99

$1.20

Units sold

22,500

24,000

25,500

27,000

30,000

Gross revenue by year

$12,825

$17,520

$22,185

$26,730

$36,000

Total gross revenue

$84,375

$90,000

$95,625

$101,250

$112,500

Total direct cost

$24,507

$26,302

$28,109

$30,000

$32,139

Fixed costs

$47,152

$49,176

$51,789

$52, 856

$55,121

Total costs

$71,659

$75,478

$79,898

$82,856

$87,260

Gross profit (or loss)

$12,716

$14,522

$15,727

$18,394

$25,240

References

Fuller,G. W. (2016).&nbspNewfood product development: from concept to marketplace.CRC Press.

Grant,R. M. (2016).&nbspContemporarystrategy analysis: Text and cases edition.John Wiley &amp Sons.

Martin,D. (2015). Strategic pricing and rational inattention toquality.&nbspSSRN2393037.