Pricing is an art that requires knowing your customers well and what they’re willing to pay, as well as what your competitors are charging. If you price your products correctly it can enhance how much you sell, creating the foundation for a business that will prosper. Getting your pricing strategy wrong will create problems that your business may take forever to recover from.. To price your products correctly, you should know your:
One of the basic ingredients for pricing your product is knowing what it actually cost you. Your cost needs to be covered and profit should also be considered while finalising the price of your product. While calculating the costs, don’t forget to add your overhead costs along with the actual costs.
- Revenue Target
You should also have a revenue target for how much of a profit you want your business to make. You will have to consider the production, marketing, selling costs, etc while setting the target so that you can then come up with the price per product in order to make revenue as per your target.
Don’t spend too much energy on your competitors, but following your competition can give you great ideas, tips, hints and in some cases customer insights too. In pricing strategy, there are three important questions: Who provides an alternative to my product? Is mine better or worse? And does the customer care? If your product is better, find the competitive price difference and price your product higher than your competitors. If yours isn’t as good, find the competitive price difference and price your product lower than your competitors. And as your competitors’ prices change, so should yours. But this strategy is applicable only when customers are very familiar with the prices.
Keep your customer in mind while fixing the price. Various kind of discounts/ offers are always welcomed by them. You should know what price your customer would be willing to pay for your product. Undertaking some sort of market research is essential to getting to know your customer. This type of research can range from informal surveys of your existing customer base that you send out in e-mail along with promotions to the more extensive and potentially expensive research projects undertaken by third party consulting firms.
You must keep track of outside factors that will impact the demand for your product in the future. These factors could be anything like climatic changes, governmental laws, continuously changing fashion and trends, etc. Once you’ve taken care of the above points then you could consider using the most appropriate pricing strategy for your business. Let’s take a look at the different pricing strategies that you could use :
The going rate
Do you know what your competitors are asking or getting for similar products?
This is especially a common price strategy if there are a lot of similar products or services on offer in a competitive market e.g. freelance graphic or web designers. You can’t be too expensive or too cheap!
Value based pricing
Do you realise how much value your work adds to your client’s business?
Most designers and makers hugely underestimate what they create for their clients. Value-based pricing is based on what your value creation actually could be. For example, a freelance web designer can accept a job from a small business to create a brand and website, and base their fees on that. As a value-based designer you would first have a meeting with your client to find out what they are really looking for, what the challenges are for their business, how a better and user-friendly website could contribute to a (massive) increase in their sales in the future.
It is a very good deal if you offer discounts to your customers if they make bulk purchases. It encourages them to buy more from you in future. Many online stores use this strategy in order to make more sales. For instance, you must have seen that once you shop online from a particular website, say you bought a dress, then they might offer you matching jewelry or footwear with your dress at discounted rates. In other case, they might send you notifications about discount offers on other dresses now that they know what you like buying from their store.
Credibility Building Price
Sometimes there are clients who you really want to work with, who are high-profile but have limited budgets e.g. in the cultural non-profit sector. You can decide to work for them for a lower or no fee, but I would strongly suggest that you get something else in return than money! For instance, if you own a grocery store, you could provide groceries for free/minimal amount to a famous NGO in return for something that will increase your credibility in the market. Be careful to work for free, and negotiate with the client for something that can increase the promotion and visibility around the work you do, and ensure that it builds on your credibility. Discuss and negotiate in advance how these more interesting clients will help you to promote you or give you introductions to other (fee-paying) clients or have good testimonials on your website.
Premium or Prestige Price
Are you able to charge more because you are more exclusive, your brand, your position in the market and your target audience? To be able to charge these high prices, you will need to provide excellent customer service throughout the entire selling process, work with the finest materials, and need to be able to show your creativity and expertise to achieve these higher prices. For instance, if you own a well established chain of restaurants with great food, good service, amazing ambience and happy customers then you can definitely charge a premium price.
Extra Features Price
Have you got similar products or services at different price points within your range with extra features? For example, if you own a jewelry store, a necklace in gold or a necklace in silver have different prices, a necklace with diamonds in the same collection has a different price again. All three necklaces might be very similar, but due to added features they get a different price.
Psychological pricing refers to the amounts that customers are on an average prepared to pay for wedding or gifts -particularly in the gift market. Especially department stores are very aware of this. For example, the average price for a wedding gift to an acquaintance is £25, so if your product would retail just a little bit above this price then it will not be stocked by retailers.
It is not just the conversion rate that you need to check regularly.If you work internationally I would strongly suggest that you check out the local market, local prices and what your competitors charge locally, as different markets can differ hugely and you need to do the pricing accordingly. For instance, this strategy will be very helpful if you’re an online apparel store shipping your products worldwide. So you can select any of the pricing strategies from above, but make sure that they are suitable for your business. A great strategy can do wonders for your business. Make the most of it!