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 something way 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 pricing of your products is being talked about, 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 bring potential customers.
But in another sense, pricing is not actually important because you are there in the industry. Rather, you are actually in the pricing industry because it is necessary to business everywhere.
There are several things that you should keep in your mind while setting the prices of your products is how much your customers are willing to pay for your products has barely anything to do with the cost but has very much to do with how they are valuing the service or products they are buying.
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 other competitors charges for their products.
– Value-based pricing of the goods— setting the price based on how much your customers are believing what you are selling is worth.
– Price skimming— it is another process of setting a high price and lowering it as the market evolves gradually.
– Penetration pricing— setting a low price in order to enter a competitive market and raising it later.
There are several things that you should keep in mind before you develop an effective pricing strategy are as follows:
The price should reflect the value you are providing versus what is provided by your competitors.
- The set price match what the market will be truly paying for your offerings.
- The price should support your brand and the brand value.
- The prices you set should be able to 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 4 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 as 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 few other products out there in the market which are more or less similar to that of 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 in order to personalize your price.
- You can mark the differences and subtract an amount from the price for a negative feature and add an amount for any positive feature of the product.
- It is to be made sure that the value of the product 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 let them know why they should pay what they are paying.
- If there is an already established market out there, you can take help from them in order to have an idea about what your prices should be.
For Example, Starbucks can be a very good example to cite here. Their pricing strategy is something that 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 hike to the specific drinks and sizes rather than applying it to the whole lot.
Here are Several Marketing Strategies that you can adapt to set the Prices for your Products.
Pricing for Market Penetration:
If you are a small business owner, then you are likely to be looking for various ways to enter the market so that your business, goods and services becomes 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 are finally able to penetrate the market, you can increase the prices of your products in order to better reflect the state of the product’s position within the market.
For Example, Google phones did not used to be too expensive when it first entered the market. After gaining popularity, it started to increase its price and now Google phones are available at premium prices.
Analyze the Prices Set By Your Competitors:
People often tend to compare the prices with a number of shops, stores or companies. They then opt for the one who has the minimal price for a product having the same features and aspects. Thus, you can look at a wide variety of both indirect and direct competitors of yours in the market to gauge where your price falls.
If your value proposition is of operational efficiency, evaluate the competitors out there on a regular basis in order 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. As a matter of fact, 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 set 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 have an impact on your total revenue.
This particular pricing strategy is basically a “no-frills” approach towards 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 business 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 incredibly useful 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 amongst the most widely known Laptop brands. The pricing of Hp laptops are quite affordable and reasonable.
Psychological Pricing Strategies:
Psychological pricing strategy is one of the most important and effective pricing out there. There is an approach of gathering the emotional responses of the consumers instead of his rational respond.
For Example You might have seen that various malls out there mark their prices of the products as 999 instead of 1000. This is, in fact, a very good strategy in order to create an illusion in the minds of the customers that the price of the product is within 1000 and thus it is not very expensive.
For most of the consumers out there, pricing is an important and an indicative factor for whether to go for, or not to go for purchasing a product.
Premium Pricing of the Product:
With premium pricing strategy, businesses often set their costs higher because they have a unique and outstanding product or brand that no one out there can compete with.
You should consider using this simple but effective strategy if you have a considerable competitive benefit and if you know that you can charge a higher price without the fear of being undercut by a product of the same or similar quality.
A nice 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 most reasons behind the thoughts of the people about Apple products as flagship gadgets.
This pricing strategy is basically designed in order to help various businesses out there to maximize their sales on new products and services. Price skimming strategy involves setting rates higher during the initial phase of a product. 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 phones arrives in 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 of time.
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 for attracting more and more price-sensitive consumers.
Price skimming strategy not only helps a small business to recoup its development costs but also it creates an illusion of the quality and exclusivity when you introduce your product for the first time in the marketplace.
If you are thinking to expand your business across the state or international lines, you need to emphasize on the geographical pricing strategy. This strategy involves setting the price on the basis of 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 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 in which 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 on increasing your profit margin. You can also consider taking the help of various accounting software in order to keep a track of the relevant data.
These data allow you to continuously evaluate the pricing strategy and methodology which can enable 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 business 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.