Pricing

Each period, you must set the recommended customer price for each of your marketed products. The customer price is the list price for customers. The average selling price is the price at which you sell your product to distributors. It varies by distribution channel since different margins hold in each of the three channels, as explained in the Distribution Channels section.

All distributors tend to respect the recommended prices set by companies. Figure 5 provides a summary of prices and margins for a recommended customer price of $400 and a unit transfer cost of $125. Dumping is strictly forbidden in the Markstrat world; therefore the recommended customer price must be set so that the selling price of a product is higher than its transfer cost, in all channels.

Prices must be entered each period in the Marketing Mix decision form. Price increases or decreases greater than 30% in one period are highly discouraged as they often result in negative market reactions. On one hand, an excessive price increase is usually not accepted by customers who may react strongly and stop purchasing the product. On the other hand, an excessive price decrease will result in a proportional cut in the distributors’ margin, and your commercial team may have a hard time finding distributors for the product. A message will warn you when such decisions are made. If you ignore the warning, the recommended customer price will be automatically adjusted up or down to stop such adverse reactions.

Figure 5 – From customer price to unit contribution