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Total Profit Pricing

 

DisciplinesMarketing > Pricing > Total Profit Pricing

Description | Example | Discussion | See also

 

Description

Set your price based on that which will lead to a maximum possible profit across a range of products. This can include some combination of loss-leader pricing and premium pricing, or other pricing methods that have an effect on sales figures and prices people will pay.

You can also look across your whole range of products and services to see where profit can be maximized overall, perhaps at the expense of some individual products.

Another approach is to consider the total profit of a single product across its whole lifetime, for example by taking into account add-on products, upgrades, servicing and so on.

Example

A market manager introduces a basic, low-priced, low-profit product to the product line in order to gain attention, but the real goal is to upsell to more profitable products (sales bonuses are set to support this).

A company produces a high-priced product that is shown in exhibitions. By comparison, their other products seem quite cheap and even with an elevated price that reduces sales a little, they sell enough to make a greater profit.

Discussion

When prices are set by individual products (and product managers) the big picture is often easy to miss, in particular where product managers compete with one another for sales figures.

When working first on profit, all costs may be examined carefully. A total-profit approach to this ensures that cuts to increase short-term and few-product benefits does not harm the overall profit, both for the year and over a longer period. A total-profit approach, for example, may lead to approaches to quality that seem expensive, but lead to lower warranty returns and increased brand value.

At the end of the year, in company accounts, a total profit figure is indicated after all company costs have been deducted from income. This is the real profit. This can be broken down to get a better understanding of what products and marketing strategies contribute most to the real profit.

See also

Loss-leader Pricing, Premium Pricing, Price Elasticity

 

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