When you are an owner of any small business, the first and foremost thing that you should keep in mind is that you should set the prices of your products right. The correct pricing of the product is the most important thing when you are starting a business.
Setting the prices of the products and services is more than just simply calculating the costs of the purchased products and summing them up.
You might have heard a lot about pricing the products of a brand and intelligent pricing. There are many concepts regarding the pricing strategy of your products and services of your products and like psychological pricing, optimized pricing, etc.
When correct product pricing is being discussed, it is not just about working to pad your own interests. It is also about seeking to be the premier pricing evangelist out there in the market and also bringing potential customers.
But in another sense, pricing is not necessary because you are in the industry. Instead, you are in the pricing industry because it is necessary for business everywhere.
There are several things that you should keep in your mind while setting the prices of your products. How much your customers are willing to pay for your products has barely anything to do with the cost but very much to do with how they value the service or products they buy.
According to Dolansky, he believes that most entrepreneurs out there should use for their pricing is by figuring out how much your clients value your goods and services and setting the price accordingly. This process is called value-based pricing.
In one line, pricing your products appropriately is very important for your marketing strategy also. Some common and popularly known strategies for pricing your products that you can adapt for your brand:
– Cost-plus pricing strategy— simply calculating the costs and then adding a mark-up.
– Competitive strategy of pricing— setting a price based on what your competitors charge for their products.
– Value-based pricing of the goods— setting the price based on how much your customers believe what you are selling is worth.
– Price skimming— is another process of setting a high price and lowering it as the market evolves gradually.
– Penetration pricing— setting a low price to enter a competitive market and raise it later.
There are several things that you should keep in mind before you develop an effective pricing strategy as follows:
The price should reflect your value versus what your competitors offer.
- The set price matches what the market will indeed pay for your offerings.
- The price should support your brand and the brand value.
- Your set prices should enable you to reach your revenue and market share goals.
- It should also maximize your profits.
As you know, appropriate pricing has a lot to do with the growth of your business and also with the marketing strategies. It is one of the four classic Ps which are subjected to the success of any business, namely, Product, price, place, and promotion.
Tips that you can follow in order to arrive at Value-Based Pricing:
Value-based pricing is considered one of the most effective pricing strategies by Dolansky. There are several tips that you can follow if you want to arrive at value-based pricing:
You can look for a few other products out there in the market which are more or less similar to that yours. Then you can find out what other people are paying for these products.
- You can try to figure out various aspects by which your products differ from the others and mark them to personalize your price.
- You can mark the differences, subtract an amount from the price for a negative feature, and add an amount for any positive part of the product.
- It is to ensure that the product’s value to the customers out there must be higher than the set price. This will make them willing to pay for the product.
- Also, try to demonstrate your products to your customers and tell them why they should pay what they are paying.
- If there is an already established market out there, you can take help from them to have an idea about your prices.
For Example, Starbucks can be a perfect example to cite here. Their pricing strategy can be followed by all the entrepreneurs out there. Starbucks incorporates the ‘right customers and the right market strategy in their pricing technique. They also apply price hikes to the specific drinks and sizes rather than using them for the whole lot.
Marketing Strategies to set the Prices for your Products.
Pricing for Market Penetration:
If you are a small business owner, you are likely to look for various ways to enter the market so that your business, goods, and services become more well-known and popular. Various Penetration strategies help to attract new buyers by offering them lower prices on the products and services than the competitors out there.
But, it is to be remembered that penetration pricing can also be a little bit risky because it can result in an initial loss of income for your small business. Over time, however, the increase in the awareness in people can drive profits up and help your business stand out from the crowd.
In the long run, after you can finally penetrate the market, you can increase the prices of your products to reflect better the state of the product’s position within the market.
For Example, Google phones did not use to be too expensive when they first entered the market. After gaining popularity, it increased its price, and now Google phones are available at premium prices.
Analyze the Prices Set By Your Competitors:
People often compare the prices with a number of shops, stores, or companies. They then opt for the one that has the minimal price for a product having the same features and aspects. Thus, you can look at a wide variety of indirect and direct competitors in the market to gauge where your price falls.
If your value proposition is of operational efficiency, evaluate the competitors out there regularly to ensure that you are continuously competitive in the market.
Determine Price Sensitivity:
You need to know that a higher price often means a lower volume. You need to analyze how sensitive your customers are towards the fluctuations.
Yet you might be able to generate more wholesome revenue or profit with fewer units at a higher price. This solely depends on how your customers are sensitive to the fluctuation of prices.
Provided your customers are highly sensitive, you may be better off at typically low prices with a substantially greater volume. So, it is vital to estimate how price changes can impact your total revenue.
This pricing strategy is a “no-frills” approach to setting a price for6 your business products. This strategy involves minimizing marketing and production expenses as much as possible.
Used by a wide range of small-scale and large-scale businesses out there, including various discount retailers and general food suppliers out there, economical pricing enables a company to attract the most price-conscious consumers all over the globe.
As a result of the lower cost of expenses, companies can set a lower sales price for the services or products and still turn a slight profit.
It goes unsaid that economy pricing is beneficial for a number of large-scale companies out there. But on the other hand, the technique can also be dangerous for various small-scale businesses. Because small businesses generally lack the sales volume of larger companies, they perhaps can find it challenging to cut production costs.
In addition to that, as a young company, they may not also have enough brand awareness to go for custom branding.
For Example, HP has all the advanced features and is one of the most widely known Laptop brands. The pricing of Hp laptops is quite affordable and reasonable.
Psychological Pricing Strategies:
The psychological pricing strategy is one of the most important and influential. There is an approach of gathering the consumers’ emotional responses instead of their rational reactions.
For Example, You might have seen that various malls out there mark their prices of the products as 999 instead of 1000. This is a perfect strategy to create an illusion in the customers’ minds that the product’s price is within 1000 and thus it is not very expensive.
For most of the consumers out there, pricing is an essential and indicative factor for whether to go for or not to go for purchasing a product.
Premium Pricing of the Product:
With a premium pricing strategy, businesses often set their costs higher because they have a unique and outstanding product or brand with which no one out there can compete.
You should consider using this simple but effective strategy if you have a considerable competitive benefit and know that you can charge a higher price without fearing being undercut by a product of the same or similar quality.
An excellent example to cite here is Apple. They usually set the prices of their products higher to make their clients feel that they are the pioneer sellers of electronic gadgets. It is the price of the iPhones and the iPads out there which is one of the major reasons behind the people’s thoughts about Apple products as flagship gadgets.
This pricing strategy is designed to help various businesses maximize their sales of new products and services. Price skimming strategy involves setting higher rates during a product’s initial phase. The company then gradually lowers the prices as the competitors’ goods appear on the market.
This strategy of price skimming can be best seen as an example in the markets of mobile phones. When a new model of mobile phone arrives on the market, the price is generally set higher. Over time, the price is gradually skimmed and lowered as the model becomes old after a definite period.
One of the most attractive benefits of price skimming is that it generally allows businesses to maximize their profits on the early adopters before dropping the prices to attract more and more price-sensitive consumers.
Price skimming strategy helps a small business to recoup its development costs and creates an illusion of quality and exclusivity when you introduce your product in the marketplace.
If you are thinking of expanding your business across the state or international lines, you need to emphasize the geographical pricing strategy. This strategy involves setting the price based on the location where the product is being sold.
Various factors that influence the geographic strategy of pricing the products are:
- Shipping costs (import and export costs)
- Rent specific to the location
- Supply and availability of the product
- The demand for the products in that particular location.
For Example, the demand for winter clothes is more in the places where the winter season lasts longer, and the demand for summer clothes is more in the places where the summer season lasts longer. So, you may set the price of the winter clothes higher in the areas having a cold climate as compared to those having a warm climate. This technique is used by Roadster, which is a well-known brand for woolen kinds of stuff for men.
Once you are done with determining the right pricing strategy, you are good to set the prices for the products you are selling. You can then emphasize increasing your profit margin. You can also consider taking the help of various accounting software to keep track of the relevant data.
These data allow you to continuously evaluate the pricing strategy and methodology, enabling you to make real-time price changes to grow your business on a large scale.
After you are done with the proper setting of the price, it is time for you to start various marketing campaigns.
The management of any company needs to set the price of their goods and services very effectively as no one would ever want to enter into any situation where their sales tend to take a hit due to higher prices when compared with their rivals and other similar businesses owners.
Hence pricing strategy needs to be proper and appropriate, and the price should be done very wisely and effectively, assuring that the management of a particular organization or a company considers all aspects before they set the price of the products.
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