History of Samsung
The Samsung Group is a South Korean based conglomerate company that includes a number of subsidiaries. Samsung’s primary focus is in the electronics, heavy industry, construction, and defense industries. Other major subsidiaries of Samsung include insurance, advertising, and entertainment industry businesses. Samsung is one of the largest businesses in Korea, producing nearly one fifth of the country’s total exports.
Company History:
Samsung was formed in 1938 by Lee Byung-chull as a trading company based in Su-dong. The small company started as a grocery, trading goods produced in and around the city as well as its own noodles. The company grew and soon expanded to Seoul in 1947 but left once the Korean War broke out. After the war, Lee expanded in to textiles and built the largest woollen mill in Korea.
The successful diversification became a growth strategy for Samsung, which rapidly expanded in to the insurance, securities, and retail business. Samsung was focused on the redevelopment of Korea after the war with a central focus on industrialization.
Samsung entered the electronics industry in the 1960's with the formation of several electronics focused divisions. The initial electronics divisions included Samsung Electronics Devices, Samsung Electro-Mechanics, Samsung Corning, and Samsung Semiconductor & Telecommunications. Samsung built their initial facilities in Suwon, South Korea, where they started producing black and white television sets.
In 1980, Samsung entered the telecommunications hardware industry with the purchase of Hanguk Jenja Tongsin. Initially building telephone switchboards, Samsung expanded in to telephone and fax systems which eventually shifted to mobile phone manufacturing. The mobile phone business was grouped together with Samsung Electronics which began to invest heavily in research and development throughout the 1980's. During this time Samsung Electronics expanded in to Portugal, New York, Tokyo, England and Austin, Texas.
In 1987 with the death of Lee Byung-chull, the Samsung group was separated in to four business groups leaving the Samsung Group with electronics, engineering, construction, and most high-tech products. Retail, food, chemicals, logistics, entertainment, paper, and telecom were spun out among the Shinsegae Group, CJ Group, and Hansol Group.
Samsung grew as an international corporation throughout the 1990's. The construction division of Samsung secured several high profile construction projects, including one of the Petronas Towers in Malaysia, Taipei 101 in Taiwan and the half mile tall Burj Khalifa Tower in the UAE. Samsung 's engineering division also includes Samsung Techwin, an aerospace manufacturer that manufacturers aircraft engines and gas turbines as well as supplying parts used in jet engines on Boeing and Airbus aircraft.
In 1993, Samsung reorganized to focus on three industries, electronics, engineering, and chemicals. The reorganization included selling off ten subsidiaries and downsizing. With renewed focus in electronics, Samsung invested in LCD technology, becoming the largest manufacturer of LCD panels in the world by 2005. Sony partnered with Samsung in 2006 to develop a stable supply of LCD panels for both companies, which had been an increasing problem for Sony which had not invested in large LCD panels. While the partnership was nearly a 50-50 split, Samsung owned one share more than Sony, giving them control over the manufacturing. At the end of 2011, Samsung bought Sony's stake in the partnership and took full control.
Samsung's focus in the future is centered on five core businesses including mobile, electronics and biopharmaceuticals. As part of it bio-pharma investment, Samsung formed a joint venture with Biogen, investing $255 million to provide technical development and biopharmaceutical manufacturing capacity in South Korea. Samsung has budgeted nearly $2 billion in additional investment to pursue their bio-pharma growth strategy and leverage the advantages of their joint venture.
Samsung has also continued to expand in the mobile phone market, becoming the largest manufacturer of mobile phones in 2012. To remain a dominate manufacturer, Samsung has earmarked $3-4 billion to upgrade their Austin Texas semiconductor manufacturing facility.
How to Make Money on Your Mobile App
There are infinite competing mobile apps in the market. However, you can still win against the competition, get noticed for your work and more importantly, make money from the sales of your app.
Though the app marketplace may look really intimidating at first glance, developers can carve out a comfortable niche for their apps, if they follow certain norms for success.
Interestingly, the developer can make a profit from the most elementary of apps, if he knows how to go about it. We have here a set of how-to’s on earning from your mobile application.
All about Making Money with Mobile App Development
Difficulty: Average
Time Required: A few weeks to a month at most
Here's How:
Create an innovative App :
In a market virtually flooded with all kinds of apps, you, as the developer, have to focus on the approval of your app right now. Make sure to read through all the terms and conditions of the particular app store before submitting your app therein. Reading through the fine print reduces the risk of rejection to a large extent. Try to develop innovative, usable and engaging apps – that will increase chances of approval.
Note: Test the app well before submitting it. Even the slightest slipup on your part may result in rejection of the app.
6 Tips to Develop Usable Mobile Apps
Promote the app :
After crossing the approval process, you need to get customers to download your app. Many app stores do feature new apps on a daily basis, so your chances of getting exposure are good to that extent. But to actually get potential users to notice your app, you should ensure it is of very high quality. Displaying a good-looking, polished app will enhance chances of its sales.
Note: You may even want a designer and programmer to work on the design and the UI.
Mobile App Marketing: Promote Your App Even Before its Release
Extend the app to your existing business
Do you already run a small niche business? Good for you! You could create a mobile app that is an extension of your own business and show it to the world. For example, if you are in the real estate business, you could probably develop a location-based app which would give people an idea of homes for purchase or rent in that and adjoining areas. Once you are successful in this maiden venture, you will automatically want to try out mobile advertising and such.
Tips to Create a Mobile App for Your Business
Size does not matter :
It is a fact that many successful apps are huge and quite complex. But you do not necessarily need to develop complex apps to succeed in the market. Even a simple app will do. Small and “light” apps require very little financial investment and less time and effort in designing. These are usually easy to use and so, can also be marketed with minimal effort.
Note: An essentially simple app with great graphics usually scores very high in the app market. Basic gaming apps are very popular for this very reason.
What is It that Makes a Mobile App a Popular App?
Give the app visibility
Giving your app visibility is vital to its success in the app market. You should aim to be getting into the top 25 apps if possible. Start in a small way if you have to and build up from there. Gather an audience for your app and try to get them talking to other people about it too.
6 Essential Elements for a Top-Selling Mobile App
Enter a contest or event
Entering developer contests gives your app instant exposure. What is more, you also stand a chance to make a good deal of money from your app in this way, in case you happen to win. These contests are usually attended by the who’s who, so your app gets tremendous exposure in the market. Taking part in contests and events also gives you a chance to speak about your innovation and puts the spotlight on your app, thus further enhancing chances of its sales.
How to Price Your Mobile Application
Tips:
Generate media buzz about your app. Create a website for it and indulge in a lot of social networking to promote it.
Be ready with your marketing strategy, such as readying press releases, pictures and video clippings of your app and all other relevant information.
If you have existing apps, present the new one to your existing customers, who will be open to receiving more info from you.
Tie up with other companies for mutual benefit.
Be active on forums and interact with all around. You never know who might turn out to be your next potential customer.
How to Make Money by Selling Free Apps
What You Need
Developer skills
A mobile app to show off
Marketing skills
Patience and determination
Searches related to How to Make Money on Your Mobile App :
How to make your own mobile app
How to get your money back for an app
How to make money with an app idea
App to make money on iphone
Make money app development
Make money app store
Make money app trailers
Make money app android
How to Prepare a Proforma Invoice
A proforma invoice has all the familiar components of an ordinary domestic invoice -- a description of the product, an itemized listing of charges, and sales terms. I detailed a substantial portion of this subject in my book, "Start and Run a Profitable Exporting Business." Let's say you want to get your customer a landed price quote for a shipment of hairbrushes to their port of entry, in this case CNF (cost and freight) Rotterdam:
U.S.A. Widgets to Rotterdam via Ocean -- Calculating Landed Price per Unit
Here's a look at how you prepare a proforma invoice on an export sale.
You have 100 cases of hairbrushes, packed 12 units to a case. Each case is priced $120, or $12 per unit. Total cost for the order is $12,000.
Selling price: $12,000 -- F.O.B. factory door in U.S.A.
Inland transport: $700
Ocean transport: $1,500
Duty: $300
CAF: $1,250
Documentation: $125
TOTAL LANDED PRICE (or Total CNF Rotterdam): $15,875
The selling price is your cost to buy the product from the manufacturer, plus your markup. Add that figure to the total shipping costs and divide that total by the number of cases. That gets you your landed price per case. Divide that figure by the number of units in a case. That gets you your landed price per unit. In front of the word "invoice," type "proforma."
You have now finalized your price quotation and created a proforma invoice. Don't forget to specify a precise time period during which your quote is valid, and add the freight forwarder's (logistics specialist's) quote reference number.
Once your customer approves the proforma invoice, it will become your actual invoice for the order. The customer will also use the proforma invoice to obtain any necessary funding or import licenses. Your customer should communicate acceptance in a short written sentence or two such as the following (usually via email or fax), with a signature: "We accept your proforma invoice No. 1234 against our P.O. No. ABCD." You will then respond: "Acknowledge and confirm your P.O. No. ABCD against our proforma invoice No. 1234."
That's it. You have a sale. You're in business! From this point on, no additional changes should be made to the transaction by you or your customer until after the expiry date given on the proforma. Before you release the order, though, you and your customer must negotiate terms of payment. There are many factors to consider when choosing an export payment method. Be sure to examine all of them before finalizing your transaction.
Advantages and Disadvantages to Direct Exporting
Direct exporting means you export directly to a customer interested in buying your product. You are responsible for handling the market research, foreign distribution, logistics of shipment and for collecting payment.
The advantages of this method are:
Your potential profits are greater because you are eliminating intermediaries.
You have a greater degree of control over all aspects of the transaction.
You know who your customers are.
Your customers know who you are. They feel more secure in doing business directly with you.
Your business trips are much more efficient and effective because you can meet directly with the customer responsible for selling your product.
You know whom to contact if something isn't working.
Your customers provide faster and more direct feedback on your product and its performance in the marketplace.
You get slightly better protection for your trademarks, patents and copyrights.
You present yourself as fully committed and engaged in the export process.
You develop a better understanding of the marketplace.
As your business develops in the foreign market, you have greater flexibility to improve or redirect your marketing efforts.
The disadvantages:
It takes more time, energy and money than you may be able to afford.
It requires more "people power" to cultivate a customer base.
Servicing the business will demand more responsibility from every level of your organization.
You are held accountable for whatever happens. There is no buffer zone.
You may not be able to respond to customer communications as quickly as a local agent can.
You have to handle all the logistics of the transaction.
If you have a technological product, you must be prepared to respond to technical questions, and to provide on-site start-up training and ongoing support services.
Should you decide to export direct, make sure you have a company-wide commitment, which includes your Import/Export Dream Team to ensure the initiative is fully supported.
Choose Best a Product to Export
What gives you the most fulfillment as a businessperson? Is it creating value by meeting consumer demands? Is it the challenge of spotting a trend, positioning yourself to take advantage of it, and striking it rich? Or is it the chance to spend your time dealing with a commodity you love? You have two viable reasons for choosing a product to export:
1. Because you know it will sell.
2. Because you like it.
Let’s consider both alternatives.
Choose a Product That Sells
Start with a product that you know will sell -- if not everywhere, at least somewhere. At the very least, start with a product that you would buy! Blackberry, Netflix, and Apple’s electronic gadgets became global successes because the companies' founders created high-quality products and services they'd be glad to buy or use themselves. They were packaged exquisitely and sold at a value. On the way to global success, the founders talked about their products to their family, friends and media. You might try the same tactic: when you find a product for exporting, show it to anyone who will listen to your pitch. If every person responds positively, you are onto something big. If, on the other hand, you receive a lukewarm response from most listeners, you need to find another product fast. And remember, once you find the right product, you have to find the right market.
Also, you will improve your odds of picking a winner if you cultivate a knack for tracking trends, or even spotting potential trends. Getting in on the ground floor and exporting a product before it becomes a super-seller in its country of origin could be the business breakthrough of a lifetime!
Must Select a Profitable Overseas Market
Once you have a good idea of what you want to export, you must decide which overseas market you are going to enter. Here I look at a variety of factors that play into the decision-making process.
In “Exporting: Will Your Product Succeed in Your Market of Choice” Asked a series of questions that helped you determine market conditions before selecting an overseas market. Among them are:
1. Who will buy your product, and why?
2. What is the size of the market?
3. Who is your competition?
4. How new is the product to the market you have selected?
5. Are there growth opportunities in the market?
Once you answer these questions, the next step depends on what type of product you are selling and what you are trying to accomplish, because each country might offer a unique advantage versus another. For example, are you trying to sell organic butter to customers in Ireland or snow blowers in Zimbabwe? Ireland might prove to be a great country to enter for sales of trendy American baseball caps, but for a country rich in agricultural resources, butter might be the last thing it needs. Case in point: Kerrygold butter (http://kerrygoldusa.com/products/butter/). And Zimbabwe, only on the rarest of occasions has experienced snow. The product really dictates where there might be a ripe opportunity to export to a particular country.
The next factor is how will culture influences affect how your product or service will be perceived. A simple solution for this issue would be to export to cultures that are similar to your own locale. Take me, for example. I am based in the United States. Markets that are culturally close to my own are: the UK, Australia, Canada and New Zealand. When you enter a market close to your own culturally, you can communicate more fluidly and easily localize your product offering to fit the needs of the marketplace.
Another consideration is the size of the potential market in terms of population and the amount of money people have to spend (GDP per capita purchasing power). Can consumers afford your product? Is the country growing at a fast or slow clip year after year? Also look at a country’s infrastructure. Does the country have the ability to transport products from point A to B?
As you get closer to selecting a market that works in all respects, ask yourself this: Are you excited about the thought of traveling to the market repeatedly? If not, go back to the drawing board and find another market, because if you sell a product like hotcakes overseas yet dread visiting there, it’s just not worth making your life miserable. Pick a market you want to go many times over because you want to be comfortable in the environment to ensure you do good work. Plus, we all know that relationships rule the world and you’ll be cultivating lots of them through the course of managing your business.
When all else fails, meaning you are clueless in where to go, you can always shorten the learning curve by working with a distributor that has deep roots in the overseas market and will help speed the market-entry process. The distributor you select should also have a pulse on any political activity—good or bad—that’s taking place or is anticipated in the foreseeable future.
What am I really saying here? You must do your homework and if you do, the sky is the limit on expanding internationally if you pick the right market and the commitment is there.
Prepare Your Product for Import/Export
Here, we will help you prepare your product for import/export. This phase is critical; you should expect to do some degree of adapting your product for sale outside domestic markets before you make your first sale. Don’t just jump in and start selling! Consult with prospective customers, wholesalers, agents, embassies and so on to determine the best strategy for selling your products in an overseas market.
Studying competing products in the country where you wish to do business is a great way to target what works in that market. If you cannot visit the country and scan store shelves yourself, get in touch with folks on the ground there and see if they can apprise you of what products are comparable to yours.
Meanwhile, grab a sample of your own import/export-ready product, and let's run through our checklist:
1. The name of your product. Sure, it sounds fine and intriguing to an American, but what does it mean in the target market? Find out beforehand. If you don't, you will end up with a fiasco like Chevrolet had on their hands when they introduced their new automobile called the "Nova" in Venezuela -- which, in Spanish, means "doesn't go"!
2. The colors of your packaging. What do the colors connote in the country of destination? Vibrant, attention-grabbing red sometimes signifies "warning" or "danger" in the U.S., but in Chinese culture, it indicates good luck. A slick black package with touches of embossed gold or silver conveys elegance and sophistication in the U.S. and some newly industrialized countries, but in certain parts of Africa, for example, it suggests death! Even if your design principles have been foolproof for products to be sold in the U.S., expect to have to scrap them and start fresh when it comes to marketing products abroad.
3. Overall packaging and labeling design. Besides your color choices, your illustrations or graphics need to be appropriate, appealing and understandable to your end-user. If there is any possible way you can get opinions on your package design from actual consumers in your target market, do so. Would they buy it on the basis of the way it looks? For example, if you put a smiling face on your package, but the purchase of that particular product is taken quite seriously in their country, would your labeling be trivial or cheap-looking, or even offensive? And if you want to sell your products in stores that scan data, bar-coding your product will be essential.
4. The size or quantity of your product itself. It might be perfect for U.S. patterns of consumption, but way too much in Japan, where the size of the typical household is very small. One single Whopper may feed one American, but that same burger sold in France may make a lunch for two, or have to be tossed in the trash. If too much of your product will go to waste, it's not economical or convenient for your consumer, and they won't buy it.
5. Weights and measurements. Indicate weights and measurements on your label according to the local standard measures. Metric is considered the global standard, but you must double-check.
6. Will you need a bilingual label? Canada requires a French-English label. Finland requires a Finnish-Swedish label. Most Middle East countries require an Arabic-English label. You must find out! For some destinations, the first order or trial shipment requires only a sticker on the outside of the package in the language of the importing country. Generally, this sticker should state the importing agent's name and address, the weight of the package in the country's standard units of measurement, an ingredient legend and the expiration date.
7. Number of units per package. Be careful of the cultural significance attached to the number of units you place in a box. Some countries, particularly in the West, find 7 to be lucky and 13 to be unlucky. In Japan, the number 4 is the sign of death, so packing anything four to a box will be the kiss of death for your marketing venture! Anytime you have a relatively small number of products packed showcase-style in their box, check beforehand to make sure the quantity is not considered unlucky in the overseas market. Obviously, a box full of cookies need not be a problem.
8. Pictures of your product on the label. A picture tells a thousand words. When Americans read PIZZA on the outside of a box, they know what's inside. But will they in New Caledonia? Probably not. Keep this in mind when you develop packaging for worldwide sales. Illustrations are acceptable, two-color pictures look nicer, but four-color label photography shows it like it is. Put yourself in the shoes of the prospective customer. If you don't know what's being sold, why buy it?
9. Packaging material. If your packaging is behind the times in the United States, don't think you'll be able to unload (export) it in the world market. Customers worldwide appreciate innovation and cutting-edge technology, and they EXPECT it from the United States. The same holds true for bringing a product (importing) into the United States. Don't let your customers down! Keep informed on what is the newest and best in your packaging category.
Example: My company at one time was exporting all-metal tins of gourmet nut snacks until I had a customer ask why we weren't packaging our nut snacks like Planter's! Planter's was using a composite tin (made from sturdy cardboard) that was safer and lighter in weight than an all-metal tin, but making the change was a major undertaking for us, requiring a change in supplier as well as new labels -- all too costly at once for a small business. So we waited until our labels were almost out of stock, then negotiated with new suppliers. Once we found one who could produce the composite tin, we reordered enough labels to cover both our domestic demand and the overseas business we could anticipate as a result of the improvement.
10. Extending current product applications. Here's where a few months of actually living in a foreign country would really pay off in knowing how the locals do things and what they need to be able to do better. You may find that if you changed the speed of a kitchen mixer, a food item in China might be made better and faster than ever before. Reconfigure an existing vacuum attachment and it might be perfect for some out-of-the-way corners in Sri Lanka. Before you set out to do business in a particular country, ask some simple questions: How do the people there like to spend their time? What are their favorite foods? How do they clean their homes? How are their clothes laundered?
11. Make sure electrical products are suitable for international use. If your wired product is not adjusted to the electrical standards in your target market, you'll have all sorts of problems, especially if you have already shipped the unacceptable product! A good resource you should know about is Electric Current Abroad, a publication of the U.S. Department of Commerce. It provides everything you need to know about electrical standards worldwide. If for some reason you don't find what you need, contact your local chamber of commerce or a government official in the country where you are about to do business.
12. How will you handle warranties, guarantees, consignment sales or service calls overseas? Anticipate what it will take to put one of these commitments in place not locally, but globally. Can it be done? If so, map out the logistics from start to finish and determine who will be responsible. If it is not feasible, then don't offer it.
13. Environmental effects on your product. Humidity, high energy costs, poor water supply, extreme hot or cold temperatures, poor infrastructure -- all can affect how your product holds up in a new market. It may be that you can adjust your product to withstand a damaging environment, but if not, you will simply have to choose a market that is a better fit. If there are no roads to move your product, you can't get anywhere. Period.
14. Country of origin. In order to sell a product in retail stores or elsewhere, some countries require a statement on the product that indicates where the product is made. Check with your prospective customers, wholesalers, agents, embassies and logistics specialist to determine if it is required by law before you import/export a product in the country where you are about to do business.
Adapting your product to meet the needs of an overseas market is a considerable undertaking, and will most likely require a substantial investment of both time and money. It will be smart to determine if the anticipated sales will outweigh the expense, and to project how long will it take to recover your product adaptation costs. You may find it more realistic, at least initially, to import/export your products to countries that will accept them as they are. From there, you can always grow and expand from your successes at your own pace.
But keep a long-term perspective: being willing to make strategic changes to your product will open doors to many more international markets. The risk is minimal compared to the risk of maintaining the status quo! Take the initiative, make the investment, get your product the best it can be, and you'll be able to sell it anywhere in the world.
Caution: Even a close translation might not be close enough -- "Jolly Green Giant" translates into Arabic as "Intimidating Green Ogre."
How much should you charge for your product or service?
Before we get to the actual pricing models, here are some of the factors that you need to consider:
Positioning - How are you positioning your product in the market? Is pricing going to be a key part of that positioning? If you're running a discount store, you're always going to be trying to keep your prices as low as possible (or at least lower than your competitors). On the other hand, if you're positioning your product as an exclusive luxury product, a price that's too low may actually hurt your image. The pricing has to be consistent with the positioning. People really do hold strongly to the idea that you get what you pay for.
Demand Curve - How will your pricing affect demand? You're going to have to do some basic market research to find this out, even if it's informal. Get 10 people to answer a simple questionnaire, asking them, "Would you buy this product/service at X price? Y price? Z price?" For a larger venture, you'll want to do something more formal, of course -- perhaps hire a market research firm. But even a sole practitioner can chart a basic curve that says that at X price, X' percentage will buy, at Y price, Y' will buy, and at Z price Z' will buy.
Cost - Calculate the fixed and variable costs associated with your product or service. How much is the "cost of goods", i.e., a cost associated with each item sold or service delivered, and how much is "fixed overhead", i.e., it doesn't change unless your company changes dramatically in size? Remember that your gross margin (price minus cost of goods) has to amply cover your fixed overhead in order for you to turn a profit. Many entrepreneurs under-estimate this and it gets them into trouble.
Environmental factors - Are there any legal or other constraints on pricing? For example, in some cities, towing fees from auto accidents are set at a fixed price by law. Or for doctors, insurance companies and Medicare will only reimburse a certain price. Also, what possible actions might your competitors take? Will too low a price from you trigger a price war? Find out what external factors may affect your pricing.
The next step is to determine your pricing objectives. What are you trying to accomplish with your pricing?
Short-term profit maximization - While this sounds great, it may not actually be the optimal approach for long-term profits. This approach is common in companies that are bootstrapping, as cash flow is the overriding consideration. It's also common among smaller companies hoping to attract venture funding by demonstrating profitability as soon as possible.
Short-term revenue maximization - This approach seeks to maximize long-term profits by increasing market share and lowering costs through economy of scale. For a well-funded company, or a newly public company, revenues are considered more important than profits in building investor confidence. Higher revenues at a slim profit, or even a loss, show that the company is building market share and will likely reach profitability. Amazon.com, for example, posted record-breaking revenues for several years before ever showing a profit, and its market capitalization reflected the high investor confidence those revenues generated.
Maximize quantity - There are a couple of possible reasons to choose the strategy. It may be to focus on reducing long-term costs by achieving economies of scale. This approach might be used by a company well-funded by its founders and other "close" investors. Or it may be to maximize market penetration - particularly appropriate when you expect to have a lot repeat customers. The plan may be to increase profits by reducing costs, or to upsell existing customers on higher-profit products down the road.
Maximize profit margin - This strategy is most appropriate when the number of sales is either expected to be very low or sporadic and unpredictable. Examples include custom jewelry, art, hand-made automobiles and other luxury items.
Differentiation - At one extreme, being the low-cost leader is a form of differentiation from the competition. At the other end, a high price signals high quality and/or a high level of service. Some people really do order lobster just because it's the most expensive thing on the menu.
Survival - In certain situations, such as a price war, market decline or market saturation, you must temporarily set a price that will cover costs and allow you to continue operations.
Now that we have the information we need and are clear about what we're trying to achieve, we're ready to take a look at specific pricing methods to help us arrive at our actual numbers.
As we said earlier, there is no "one right way" to calculate your pricing. Once you've considered the various factors involved and determined your objectives for your pricing strategy, now you need some way to crunch the actual numbers. Here are four ways to calculate prices:
Cost-plus pricing - Set the price at your production cost, including both cost of goods and fixed costs at your current volume, plus a certain profit margin. For example, your widgets cost $20 in raw materials and production costs, and at current sales volume (or anticipated initial sales volume), your fixed costs come to $30 per unit. Your total cost is $50 per unit. You decide that you want to operate at a 20% markup, so you add $10 (20% x $50) to the cost and come up with a price of $60 per unit. So long as you have your costs calculated correctly and have accurately predicted your sales volume, you will always be operating at a profit.
Target return pricing - Set your price to achieve a target return-on-investment (ROI). For example, let's use the same situation as above, and assume that you have $10,000 invested in the company. Your expected sales volume is 1,000 units in the first year. You want to recoup all your investment in the first year, so you need to make $10,000 profit on 1,000 units, or $10 profit per unit, giving you again a price of $60 per unit.
Value-based pricing - Price your product based on the value it creates for the customer. This is usually the most profitable form of pricing, if you can achieve it. The most extreme variation on this is "pay for performance" pricing for services, in which you charge on a variable scale according to the results you achieve. Let's say that your widget above saves the typical customer $1,000 a year in, say, energy costs. In that case, $60 seems like a bargain - maybe even too cheap. If your product reliably produced that kind of cost savings, you could easily charge $200, $300 or more for it, and customers would gladly pay it, since they would get their money back in a matter of months. However, there is one more major factor that must be considered.
Psychological pricing - Ultimately, you must take into consideration the consumer's perception of your price, figuring things like:
Positioning - If you want to be the "low-cost leader", you must be priced lower than your competition. If you want to signal high quality, you should probably be priced higher than most of your competition.
Popular price points - There are certain "price points" (specific prices) at which people become much more willing to buy a certain type of product. For example, "under $100" is a popular price point. "Enough under $20 to be under $20 with sales tax" is another popular price point, because it's "one bill" that people commonly carry. Meals under $5 are still a popular price point, as are entree or snack items under $1 (notice how many fast-food places have a $0.99 "value menu"). Dropping your price to a popular price point might mean a lower margin, but more than enough increase in sales to offset it.
Fair pricing - Sometimes it simply doesn't matter what the value of the product is, even if you don't have any direct competition. There is simply a limit to what consumers perceive as "fair". If it's obvious that your product only cost $20 to manufacture, even if it delivered $10,000 in value, you'd have a hard time charging two or three thousand dollars for it -- people would just feel like they were being gouged. A little market testing will help you determine the maximum price consumers will perceive as fair.
Now, how do you combine all of these calculations to come up with a price? Here are some basic guidelines:
Your price must be enough higher than costs to cover reasonable variations in sales volume. If your sales forecast is inaccurate, how far off can you be and still be profitable? Ideally, you want to be able to be off by a factor of two or more (your sales are half of your forecast) and still be profitable.
You have to make a living. Have you figured salary for yourself in your costs? If not, your profit has to be enough for you to live on and still have money to reinvest in the company.
Your price should almost never be lower than your costs or higher than what most consumers consider "fair". This may seem obvious, but many entrepreneurs seem to miss this simple concept, either by miscalculating costs or by inadequate market research to determine fair pricing. Simply put, if people won't readily pay enough more than your cost to make you a fair profit, you need to reconsider your business model entirely. How can you cut your costs substantially? Or change your product positioning to justify higher pricing?
Pricing is a tricky business. You're certainly entitled to make a fair profit on your product, and even a substantial one if you create value for your customers. But remember, something is ultimately worth only what someone is willing to pay for it.
Five Common Product Development Mistakes
Product development is full of pitfalls and traps. Avoid these five common product development mistakes.
1. Someone will steal my product
Stealing does happen. Rarely. Very rarely. What happens more often is that a product enters the market and 'fast follow' competition enters the market within six months with a few tweaks, maybe some improvements, and a known brand name. This happens often with products that start selling well when they are released since it proves that there is a good market for the product and probably a way for your competitors to take a share of the market for themselves. Stealing an unproven idea is quite rare since it requires someone in management championing your idea in side of a company to secure the resources to turn the idea in to a product. It can happen, typically when an idea is being shopped around to be licensed and the cost to develop is cheaper than the cost to buy the idea. The fear of someone stealing an idea should not prevent you from getting feedback on the idea from potential customers. Early feedback is truly invaluable since it can save so much time and money spent developing a product that customers will not buy.
2.
Focusing on Patents over Prototypes
Patents are only a piece of paper that grants the rights to be the sole producer of a product for 20 years - they are not a product themselves. They give you the right to sue people and companies that infringe on your right but they do not create sales. They also take a very long time to be issued, often four years or more, which is longer than a product will be sold in some markets. They also cost a lot to get and often millions to defend. Patents have their place, but get them only when they are really needed. NDA's (non-disclosure agreements) can be used to protect intellectual property and idea before a patent is issued for much less cost. Also remember that not everything is patentable and often things like benefits can be discussed openly with potential customers to gain feedback without giving away patentable information or disclosing information that would be patentable. However, since the world is now on a first to file system getting a low cost provisional patent is a great way to initially protect an idea that you will pursue. Provisional patents need to be followed up with a full patent application within a year. Always check with a lawyer to fully understand the laws and guidelines around patents and other legal matters.
3. Focus on Perfection
Perfection is the enemy of good enough and at the end of the day a product that does not ship can't make money and is a failure. Product development is full of stories of design teams continuing to change a product to make it perfectly fit a target audience or an ideal and destroying budgets and time to market goals. Often customers don’t know exactly what they want until it is in their hands. Surveys and focus groups can provide limited insight, but nothing trumps users let alone with a product. Touchscreen interfaces on phones were not welcomed by consumers in the initial focus groups, surveys, and customer research that many phone companies did before Apple introduced the iPhone and changed consumers understanding of the market. Perfection is never achieved, and it takes months for most products to go from a final design to a store shelf. Plan accordingly.
4. Failing to Understand the Costs of Getting a Product to Market
Making and selling a product needs to generate enough revenue to support the entire ecosystem connected to the product. The OEM (Original Equipment Manufacturer), distributors, and retailers all need to be able to pay their people, cover their costs, and make some profit. These costs add up to a much greater level than most people realize. Often, for each party to cover their costs and make a small profit they add 30-50% each to the cost of a product which results in the retail rule of thumb that products should cost 5x less to manufacture than their retail price. Attempting to make a product for only a few dollars less than is in the store already is a recipe for a financial disaster. Understand the product costs, the costs of getting to market and make sure the market is large enough to support the entire ecosystem.
5. Competing on Price Alone
The worse kind of competition is price competition. Entering the market to beat competitors on price often results in a race to the bottom. As prices drop, the products become more and more like commodities with little difference seen between products by consumers. Margins also drop along with the prices. Only a few types of companies can survive in this environment – the giants who can afford small margins or even losing money on the product line, companies that are diverse enough to survive the price war and increase margins once few competitors are left, and companies that specialize in very lean operations and can afford continuous operation with low margins. Compete on customer value whenever possible.
Typically, importers and exporters take a 10-15% markup over cost (called cost-plus pricing method), which is the price a manufacturer charges you when you buy product from them. In other words, if your supplier charges you $1.00 per unit for his product, you might mark it up to anywhere from $1.10 to $1.15 per unit, especially when you are moving millions of units. That markup becomes your profit or commission.
Consider the following criteria to determine just how high or low you can go on your markup:
Uniqueness. If the product is a market "first," you can afford a higher price.
Quality.
Is the product's quality magical? Or marginal? Price up or down accordingly.
Your cost.
If the product is already priced high, keep your markup low. If a major manufacturer (these generally achieve considerable economies of scale in production) is able to give you a low offering price, then you can afford to set your commission slightly higher. Be careful here, though -- this scenario can be deceptive. If your cost is low to begin with, it might mean that the product is a mass commodity rather than a specialty and that the market is already flooded with suspiciously similar, me-too items. If so, you have to keep your profit margin very tight.
Is the product already established, or new-to-market?
Sometimes you can price higher when a product is new to market just because your customers need and want novel product offerings. But novelty also has its downside. A new-to-market product doesn't have the brand recognition, image and popularity that overseas customers tend to look for when they want a product with sure-fire consumer appeal.
Customer contact.
Who's calling the shots, you or the customer? Did the customer ask you to find the product, or did you approach the customer and offer it? This makes a difference. A customer who has asked you to source a product is usually more receptive to a slightly higher price because they really need the product. Don't lose your head here, though; never, ever get greedy. Your customer knows a rip-off when he sees one.
Product positioning.
How you position the product determines the price at which you'll sell it. Use the product's pricing in the equivalent sector of the domestic market as a guide to your overseas profit margin. For example, if your price for a product is $1.00, you are targeting the upscale specialty market overseas, and the suggested retail price in a local upscale store is $8.99, you can take a higher profit margin.
Direct or indirect sale.
If you sell directly to a customer, you can afford a higher profit margin. If your product is handled by a series of intermediaries -- say, an export trading company, an importer and a wholesaler -- before it gets to the retailer and end-user, remember that each of these "middlemen" will tack on their due percentage. If you price high at the beginning, your product will be priced right out of the market by the time it gets to an end-user. Nobody wins.
How desperate are you?
In a mood to see what you can get away with? Then I won't stop you. But realize you may be making a big mistake from which you won't be able to recover -- losing a customer altogether. You may really need income and feel you've nothing to lose, but don't forget the priorities of a successful global marketer: the customer relationship comes first.
Competition.
Price your products to stay in the global game. If you are up against unlimited competition, make sure you're offering comparable prices along with some extra form of value for your customers.
Are you an internationally known celebrity or star in your own right? That makes a world of difference. No matter what you are offering, your fans will buy your product at any price just because it's yours. The more popular you are, and the more difficult it is to get your product, the higher you can price it. Mainstream pop culture is the best marketing tool there is -- look at Mickey Mouse and Lady Gaga! Consider yourself fortunate, and go for it!
Test your price out on your customer, with whom you have hopefully cultivated a strong relationship and to whom you've presented your product's positive sales attributes. See what reaction you get and then negotiate from there. If you priced the product with only a slim margin for yourself -- so slim you cannot afford to go any lower -- and your customer still balks, consider re-negotiating with your supplier.
Oftentimes, if you explain that the only way to sell the product overseas is to price it more competitively, they will agree to go back to the drawing board and see if they can rework the numbers. Don't pull this too often, though, because if you continue to have price problems the supplier will catch on sooner or later that you haven't properly checked out what the foreign market will bear.
