Developing Pricing

Dec 11, 2007 1:14 PM

By Sarah Aubrey

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Modern wisdom tells us that it’s the strategies, as much as the quality of product that will allows us to survive with a small beef operation. One important strategy is pricing products. Establishing any good's value is in some measure done in relation to its price. Your customers will no doubt love the beef you provide them, but even the most loyal or affluent customers will decide what to purchase, how much, and how often partly based on the cost of goods you’re peddling. Your job as a product seller is to understand your market.

Fitting the Standard
Of course we're aware that commodity prices drive the beef market. But, it's not necessarily the same for branded beef products, especially at the local level. You may not need to fit the standard and it may even be a great selling point for your company if you don’t.

For example-pricing below a certain standard (if you can afford to) may draw your target market to you better than being the same as other vendors. Likewise, if you’re intent on delivering a high-end premium product, pricing above the typical point will be a must, assuming your quality and uniqueness merit the difference.

Pricing Rational
Deciding how you arrive at price is called the pricing rational. Your pricing rational can be based upon:

· Wholesale verses retail pricing (or both if you will sell both ways)
· Comparable products in your market
· Target clientele (value priced products or premium-level)
· Commodity or local markets
· Breakeven analysis
· Wholesale verses retail

The first factor to use in determining price is to decide how your product will be sold. One way to sell a product is at wholesale which means the product will be made by you and then sold to an intermediary such as a distributor or even a restaurant or store that will mark the final product up and make their cut before the end result is sold to the consumer.

The other way to sell is retail which means that you are the intermediary or that no intermediary exists and that you produce the product then sell it directly to the end consumer at the end price.

It would be easy to say that the decision between wholesaling and retailing is simply a decision of how much money you want to make and how much of the customer’s final dollar you want to earn.

Said another way, someone once told me that selling retail is the way you can afford to sell wholesale off the farm! Jokes aside, I personally think that’s an overstatement. The choice between these two is complicated and involves a number of factors, including the amount of dollars you want to retain for yourself in the final product you deliver. Selling retail may offer you the retail price (easily 50-70 percent more than wholesale) but it will cost you something in terms of time, labor, and other features such as packaging, labeling, processing fees and even increased liability. Your home farm situation and your market niches will ultimately determine this decision for you, but I recommend building a comprehensive pro/con list as you work through the decision.

Researching Existing Prices
The next strategy for pricing is to research existing prices and determine yet another layer of your pricing strategy. Some general ideas on researching price include:

Look into commodity markets within your industry especially if you’ll be selling wholesale. Commodity markets can be found with the USDA agricultural statistics service and other agencies

Search the Internet for other brands out there that market what you do. What do they charge? Do you think their pricing is effective?

Sign up for daily, weekly or monthly web feeds for organizations that regulate or associations that represent beef producers.

Shop the stores and markets that you plan to sell at as you did during your early market research to learn prices, features and benefits that will help distinguish your own brand.

Finally, as you set prices and begin selling, test new product prices on your customers and conduct pricing research as you work with your end consumers.

Until next month, Happy Holidays!

About the Author: Sarah Aubrey is the owner of Aubrey's Natural Meats, Indiana's premier source for gourmet natural beef and pork. She and her husband live in rural Indiana, where they raise beef cattle for her company.

To help farmers position themselves well for the opportunities afforded by today's market, Aubrey shares her years of experience in her first book Starting & Running Your Own Small Farm Business due out in January 2008. It offers everything readers need to know about launching a small agricultural enterprise, from initial start-up to consumer marketing. It is the first in a series of books Aubrey has planned for small farm businesses. For more information visit http://storey.workman.com/products/9781580176972/.

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