Pricing your product or service is one of the most important issues that you need to tackle. You must be wondering as to what is the procedure to follow to develop the best pricing strategy for your company. While there is no particular approach that you must adopt, definitely, there are some important things that you should bear in mind while creating one.
Positioning: First of all, remember that the price of your product depends upon its positioning in the market. That is not only a function of the product’s attributes, but also the way it is distributed. For instance, if you own a discount store, you should be pricing your product as low as possible and hopefully, lower than your competitors. On the other hand, underpricing a premium product is a sure way to kill it and any image you may want to create for it. Positioning is a very important part of your marketing plan, and if you’re not sure how to go about either, check out the stuff at PaloAlto Software
Demand: Charge what the market can bear. It’s a basic law of economics – that price and demand are inextricably liked. The number of people who will buy your product will depend on the price that they need to pay. This is the big question, and it is worth your while to conduct some basic research, before you answer it. Select a sample of people at random, and test their reaction at three different price points. Alternatively, show them the product and ask what price they’d be willing to pay for it. If you’ve got the resources, conduct an online survey using the services of the likes of AbExtra The insight will be invaluable in devising your pricing strategy.
Costs: Oh, they never go away! Calculate the variable and fixed costs associated with your product or service i.e., the cost of selling a product or delivering a service and the inevitable fixed costs incurred on each of them. Bear in mind that your company’s gross margin (price minus cost of goods) must cover your fixed overheads (cost of running the company such as lease on the building, employees’ salaries, insurance etc.) so that you can earn a decent profit.
Environmental factors: The pricing strategy must take into account the competitive and legal environment in which your company operates. Also, keep an eye on the competitors’ moves; check if there are any other external factors that would affect your strategy and so on.
Finally, remember that you can’t run your business without having a solid pricing strategy. This one is definitely a make or break issue. Often, you may not have a clear answer on how to price a new product. Employing a tactic such as an “introductory price offer” could help you gage the market, and make the necessary changes in such situations. If discounts are not your thing, try a less obvious ploy, like a promotional offer of some kind. But under no circumstances should you enter a market with a price you’re not sure about, with no way of changing it, should the need arise.
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