Pricing your product is one of the most strategic and toughest things to do. You cannot do it alone and you cannot have every say in it too.
So you need to look at the customer’s perspective as well as take care of your profit before coming to a conclusive price for your product. There are many factors that help you determine the price of your product and there are also many ways in which it may affect your business.
A strategic price will help you sell more products in the market and also help your business prosper.
So if you are in a dilemma about how to price your product, here are a few things you need to remember to price your product efficient in the market:
Know Your Costs
The first and foremost step that is taken in order to price a product appropriately is considering the costs involved with the product. A fundamental principle is to cover your costs and factor in profits.
This means that you need to understand about how much does your product costs and based on that you need to determine how many units you need to sell in order to achieve profits. In the process of determining the actual cost of your product, do not forget to add the fixed costs as well as variable costs involved in the product.
These are also the overhead costs and must be included in the estimation of the cost incurred on the product. This step is essential so that you do not end up under determining the cost of your product.
Many businesses often under price their products or add up too many costs, including profits and end up overcharging the customers.
The best solution, in this case, would be to maintain a spreadsheet of all your costs every month and to get a good idea of gross revenues that you will need to generate to cover up the costs.
Understand Your Customers
Willett says, "But successful firms use a combination of tools and know that the key factor to consider is always your customer first. The more you know about your customer, the better you'll be able to provide what they value and the more you'll be able to charge."
In order to know your customers, undertaking some sort of survey is the best option. This type of research can range from an informal survey sent to the customer via an email. You can also add engaging promotions along with surveys so that the customer actually takes part in your initiative.
Understanding your customer with the help of market research helps in diving deep down the demographics to know their likes, dislikes, what they buy, by whether they are price sensitive or not, etc. These factors will help you determine the market structure and what your customers might be expecting from you.
If you are a small firm and decide not to invest much on doing a full-fledged market research, then dividing or segmenting your customers into broad categories such as the budget sensitive, the convenience centered along with those who have luxury buying habits or those for whom status makes a difference etc.
The whole point of conducting a survey is to know about the target customers in more depth and then price the products accordingly. This is yet another way of knowing in what ways or precisely how will your product be accepted by your target audience.
Get to Know the Competition
Sometimes when you are pricing your product it is also good to know about the competitors. Know about your competitors and how similar or different are your products from them.
You can also study the customer’s reaction to their products and their pricing. These factors can help you come up with the price of your own product and understand its implications in the market.
According to Willett "Then, look to see whether there is additional value in your product; do you, for example, offer additional service with your product or is your good of perceived higher quality? If so, you may be able to support a higher price. Be cautious about regional differences and always consider your costs.
When researching about the price of your competitor’s products, don’t just be satisfied with what they have listed on their website. Dive down and dig deep to be their secret customers and know about their prices.
By comparing the benefits that your products are proving to their or by a head on comparison you can decide the price of your products in comparison to theirs. In other words, having information about your competitor will help you by providing an industry benchmark for pricing.
Understand Market Positioning
Once you are done knowing and digging deep about your target customers and competitors in the market, you need to determine your market positioning. It is essential since it helps you decide where you want to start pricing your product.
Review your product and ask yourself whether you want it to be the most expensive, luxurious, high-end brand in your industry, the cheapest, or somewhere in the middle.
Consider, for example, many companies selling bikes and cars are clearly positioned in the market. While some of them launch low cost bikes or cars, others like BMW or Ferrari have positioned themselves to be in the luxury end of the market. Correct market positioning also helps you understand when to lower or when to raise the prices.
Also, keep track of all the outside factors that will impact the demand for your product in the near future. These outside factors might be a change in the weather or laws such as tax laws related to your products.
Knowing these factors will help you position your products in a much effective and profitable way in the market.
Pricing a product involves numerous things to be taken into consideration. You need to know when to lower your prices and when to raise them again. Apart from that, you also need to keep an eye on your competitors to avoid market price wars.
Though, you might owe it to yourself as an entrepreneur and your business team, but always remember that pricing your product is the key factor in determining the success or failure of your business.