Establishing Product Prices for Farm Markets
Understanding cost structure and desired margin helps to identify appropriate pricing methods and the relationship to profitability. Cost of production is the academic basis of calculating price. However, pricing must be flexible enough to meet the competition and adjustable enough to changing market conditions. As an integral part of the marketing plan, price must be set to meet the sales and financial goals of the enterprise. Having a clear idea of your marketing objectives and the target market for your products makes selection of a "proper price" easier.
In the publication "A General Guide to Pricing for Direct Farm Marketers and Value-Added Agricultural Entrepreneurs", the authors describe pricing as "a key component of a thorough marketing plan and should be consistent with the other parts of the plan. Producers should consider several factors, including the costs of production and marketing; customer characteristics, needs and preferences; and competitive product characteristics, strengths and weaknesses while developing pricing strategies. The science of gathering information on costs, customers and competition is an important part of pricing. Art also plays a part in pricing as producers analyze the information, consider goals in choosing pricing strategies and determine a selling price. Markets change and evolve, however, and prices may need to be adjusted to meet the market dynamics or as producers learn more about the market conditions."
