John & Michael are meeting up at a local coffee shop. John is an owner of a new fruit beverage plant & Michael is a seasoned entrepreneur.
John: [Shakes hand with Michael’s] Hi Mike! What’s up?
Michael: Nothing special. What about you?
John: Well, our plant is almost ready to start production & we’ll kick start our marketing soon.
Michael: [Smiles] Great!
John: But before we go to market, we want to be sure that our product selling price is fair and correct.
Michael: If you want to make your product price ‘fair’, then you must think like a marketer…
John: [Interrupts Michael] And, for the price to be ‘correct’?
Michael: Then, you must think like an accountant.
John: Let us start with the ‘fair’ part.
Michael: Yes. As a marketer, you need to consider: 1) Competitor’s price 2) Value to consumers 3) Volume-Profit trade-off
John: Competitor’s price means I must look at competitor’s price & offering while fixing my price.
Michael: Correct. And, value to consumers means the value your product provides to end-consumers.
John: Got it! Can I equate ‘value’ with ‘benefits’?
Michael: Of course, you can. Now, comes the third factor i.e. Volume-Profit trade-off. See, volume sales & profit per product are, in general, inversely proportionate. The more profit you keep per product, the lesser will be your total sales & vice-versa.
John: We need to strike a right balance between volume & profit per unit?
Michael: Perfect! That’s what I wanted to convey. What is that ‘right balance’ will depend on factors like your growth plan, monthly expenses etc.
John: [Smiles] Thanks a lot. Time to jump to the ‘correct’ part.
Michael: Yup. As an accountant, you must ensure that the selling price is covering cost & giving generating profit at the unit level.
John: Sounds simple.
Michael: But, all that glitters is not gold!
John: [Laughs] Ok, please explain.
Michael: [Pulls phone out of pocket] Look at this YouTube video made by me.
John: [After watching the video] That was practical. Now, I have understood the ‘correct’ part as well. Thanks a lot.
Michael: My pleasure!