THE COMPLETE CAMPAIGN 1. Price.—One of the most important steps in plan ning the campaign is the price to be charged for the product. So important is a right price that it is some times considered even before sales channels. On it depends gross profits, and out of gross profits must come all the expense of selling.
Price, as everyone knows, primarily depends on supply and demand.. While the relation between the number of articles produced and the demand for those articles generally fixes the price for which they can be sold, a manufacturer in selecting a price for goods must have something more tangible to deal with than the rather vague factors of supply and demand. One kind of price is selected on the principle of charg ing "all the traffic will bear"; another is selected with due regard to a fair profit for the manufacturer, and yet with the purpose in mind of making the price low enough to cultivate consumer good-will. In prac tice, these two methods of selection often merge into each other. With the advent of keen competition, the day has passed when many manufacturers can arbitrarily set a high price and make abnormal profits on each sale. The necessity of building. up good-will and of discouraging possible future competition is steadily narrowing the margin between manufactur ing cost and selling price.
2. Components of price.—Retailers often set prices by the formula: cost of the goods plus.average selling expense plus desired net profit equal selling price. This simple method of pricing, however, cannot be used by the average manufacturer, altho the factors in the manufacturer's price are the same as those in the retailer's. The manufacturer's price must cover the cost to produce. This consideration involves the problem of keeping the factory busy. The unit cost of manufacture is usually at a minimum when the fac tory is running at full capacity, and a low selling price may prove more profitable than a higher one that would possibly restrict sales and decrease the amount that could be profitably produced.
Expenses of selling must also be cared for in the selling price. These depend strictly on the selection of trade channels, as the expenses include discounts for jobbers, retailers and possibly other middlemen, as well as the cost of the sales force and the advertising that may be used by the manufacturer.
Profit must always be considered. The net amount left after deducting cost to manufacture and all ex penses of selling must be sufficient to recompense the manufacturer for the risk Ile runs. This element is elastic; a certain net profit is usually provided for in the figures that determine price, but it is likely to be subject to much reduction, as the selling expenses, aided by marketing conditions, press it back, some times to the vanishing point.
3. Influence of the market.—Desired profit and ex pense of selling are not dependent on the mere inclina tion and efficiency of the manufacturer. Three things over which he has no control may force him to be satisfied with a scanty profit and to be content with small business because of the necessity of keeping selling expense at an absolute minimum. One is the nature and value of the service rendered. The pub lic will pay much for a vacuum cleaner, a talking ma chine or an automobile, because of the valuable serv ice rendered by these articles; but it can seldom be induced to pay much for a kitchen utensil or a cake of laundry soap. Again, the ability of possible cus tomers to pay must also be considered. To achieve maximum sales a fountain pen, for instance, must reach a market largely composed of people of limited means; the price must be within the reach of the av erage individual, and therefore the profit on each sale must be sliced to a minimum. A player-piano, on the other hand, intended to go only into the homes of the well-to-do, may bring a price that covers large unit selling expense and proportionately large profit.