Product pricing can be seen as either a practical and straightforward task, or one requiring a bit of creativity. Logic will tell you to price your products based on the costs of producing the product and what your competitors are charging. But a lot more thought should be put into pricing your products in order to keep both yourself and your customers happy.
Consider these useful strategies to pricing your products prudently:
Look at the current market prices
This is an important starting point, as it gives you an idea of what people are currently willing to pay for goods and services similar to yours.
Determine what the cost of production is
If you make tangible goods, it is easier to breakdown the numbers and determine actual costs. However, if you are offering services, this can get more complicated. You’ll need to determine the cost of the time expended when providing the service and the prices of the tools you will use to do so. You’ll then compare these costs to the type of profit you seek and the price you are planning on charging customers. These can be linked to standard industry norms, such as the average net or gross profit margins applicable to your industry and size of enterprise.
Where are you placing yourself in the market?
Do you want to provide a premium product, or will you be competing on price when compared to your competitors? It is very important that when making such a decision, you always provide value for the price of your specific offering. For instance, you cannot price your products at premium, but provide substandard service. Similarly, you cannot provide a cheaper product, but use very expensive materials to manufacture it, as this will eat into your profits.
Consider providing the same products at various prices
This means providing the same products, but at varying prices depending on the services or functions they provide. This gives consumers the impression that they are getting a bargain when buying the cheaper product, or a great investment when securing the more expensive product. This can potentially widen your market when properly applied. Again, the standardised version of your offering as well as the more advanced or premium version must all be based on value, relative to their features or attributes.
Pricing your products correctly can call for time and in-depth research into current pricing trends of your market. Look at the cost of production, then consider where in the market’s pricing range you will ideally be placing your product. Consider the above guidelines in order to price or reassess the current pricing model of your business. This is a pivotal factor that can often determine the success or failure of a business that might have a product with great potential, but is inappropriately priced.
Proudly brought to you by the National Small Business Chamber (NSBC).