Is it time for you to decide your product price? Are you confused about how you should decide the price? Theoretically, it should be simple; adding your costs and mark-up will give you a selling price. However, it is not so. The business environmental factors play a major role in decision of price setting hence this activity has to done considering them.
Therefore, when you are considering prices look at the factors mentioned below.
The prevalent prices in the market
Any business that caters to a large customer base usually offers variety of price options. With different prices come unique services, qualities, quantities and features. Roughly, there are three price ranges – high, medium and low. You need to understand what the price range is for each of the above-mentioned category.
For example- you own an advertising agency offering copy writing, online, offline media promotions and event advertising services and you need to know what the other businesses are charging for those services. You also need to find out the pricing for combined and individual services and clients they have. This will give you a brief idea about the price structure, the client profile and service type.
One cannot ignore the pricing trends because business pricing can determine the course of its growth. You cannot charge too much for similar services nor can you charge too low because it will hurt your business. Use the current market prices as a standard to set and compare your own price.
The target customer
There are two types of markets tapped and untapped. Tapped are those, which have considerable competition and a large customer base while in untapped markets there are no players because no one is able find a potential market. When you decide to launch a product, you need to know your target market. You need to decide whether you would compete with existing businesses or find a new untapped market. If you are planning to go head long with current businesses, decide the customer and price market you want to enter. Once you make a decision, you can chart out a pricing strategy. You can create a product at a price lesser providing similar value or increase your price and give some exclusivity. In case you feel there is a large untapped customer base you will have to find out about them and see what price they are ready to pay for your products, you could either enter a high-end market or low end one.
Make a pricing decision based on your customer base.
When you plan to steal your competitor’s clients, you need to sell something at a more competitive price. For that, you need to be aware of the price range and value associated with the product. It would be very difficult for a customer to switch loyalty for a similar product and price. However, you could change the price or value of the product substantially to cause that switch. Either sell the similar product at a visibly lesser price or create more value for customers at the same price.
Cost to you
It is very important to consider your own costs. How much would it take to make the product and sell it? A smart way to resolve the issue is to decide whom to want to sell to and then think backwards about costs. In a situation where you decide to tap a low-income customer base, your product specification would be different and so would the cost of product. If you want to tap into the high income groups, your product and pricing would vary from that of a mass market.
Your decision of market and product would determine your costs. Once you have made decision on production, materials, vendors you can negotiate with them further to reduce your costs. Use bulk buying, pre payment, full payment, cash payment options to get more discounts. The more you reduce the cost the lesser the production cost and market price.
Pricing is a crucial decision and sometimes you do not get it right the first time. Evaluate your pricing strategy regularly and make necessary changes when required. Price differentiation is one of the ways to stand out in a competitive world and if done properly with help you grow and stay in business longer.