How to price your products
By David Mogga
The wave of Foreign Exchange (FX) fluctuations that has been rocking the economic environment of the country has left businesses paralyzed and caught many by surprise as businesses continue to grapple with the twin challenges of constant FX changes and dwindling consumer purchasing power for their commodities. The fact and common saying nowadays that business is not as usual befits the ongoing challenges being faced by many businesses across all sectors of the economy.
Given these difficult economic times, pricing and particularly suitable commodity pricing is becoming harder and harder day by day as many businesses resort to the usual dollar rate for price adjustments forgetting other factors that should guide their pricing models.
Ideally pricing of products should first be guided by the constitute cost elements that together when summed up ought to give one the total cost of production upon which a suitable profit margin ought to be applied to arrive at the final product price. However such principles are easily talked about in business and economic classrooms than applied in the unpredictable, challenging and ever changing business scenarios in Juba. With the up and down swinging of the FX rate of the dollar versus the local SSP, many traders keep adding and reducing commodity prices to this day.
Diverse Price Differences versus Ideal Economic Scenario: Another common scenario that has resulted from the ongoing economic situation that is related to this topic of pricing is the wide range of price differences among several traders for the same commodities as several traders normally put different prices for the same items. These disparities which arise normally from the diverse range of FX rate being applied by each trader hence making commodity prices different for the same goods forcing consumers to ask around several traders before choosing where to buy the items in question.
According to economic theories on commodity pricing, economists argue that the leading determinates of consumer price are supply and demand such that when the supply is more than the demand then prices go down and vice versa holding all other factors constant. However given the complex scenario that businesses in Juba find themselves in, other factors play a huge role making commodity prices more the subject of speculation rather than sound economic reasoning.
How to arrive at Your Price?
Given the above twists and turns that contravene many economic theories at some point, businesses find themselves caught up between a rock and a hard place when having to decide on their commodity price. This critical management decision is often the make or break point for several business deals right from the bidding stage up to the contract signing moments wherein a single miscalculation or error could lead to total collapse of the business deal. With high competition in sign and several other competing factors in mind, many managers and traders view pricing as a riddle and the secret of all secrets in business operations making some to make fortunes while costing others severe losses.
In order to easily defuse this myth of pricing, one ought to tackle it step by step by looking at the following other factors apart from the usual economic theory of supply & demand:
- Component costs: The building blocks that lead to the eventual product costs should be the first factor to consider if the item/service is being offered directly to the final consumer. Other costs such as transportation and/or clearance charges should be added and divided by the units of the product to arrive at the unit costs. At this stage, expert advice is highly needed for accuracy of costs breakdown. For service sector, component costs;
- Location or Age of Business: Businesses with good location and solid reputations can afford to charge high premiums and get away with it unlike small start-ups that cannot afford to charge high prices hence forcing them to either change line of business or remain stagnant for a long time;
- Competition: Competitive nature of business sometimes dictates certain price adjustments and the same applies when bidding which implies that businesses ought to consider their competitors. Where competition is stiff, one ought not be very expensive lest he or she will lose out to the competition;
- Seasons: The prices of certain commodities are inherently affected by time and seasons making this an additional factor to consider when calculating commodity prices especially for agricultural commodities.
Though not wholly conclusive, the above additional factors are meant to open up the mind of business owners and make them arrive at a suitable commodity price for their products.