5 Effective Strategies To Set The Right Price For Your Product
The pricing of your product is crucial as it can make or break your business. Price it too high and you drive away potential customers, go too low and you could lose out on your profit margin and risk slipping into losses. Pricing is both an art and science in itself. Finding that optimum price can skyrocket your sales and drive your business growth.
Setting the right price for your product can be rather challenging; more so if it is a completely new product in a niche market. However, for those entrepreneurs who have a range of products, pricing becomes relatively easier because they can experiment with pricing and afford to mark down the price of one product and markup the price of another totally out revenue and profits. Here is a checklist of tips to keep in mind when narrowing down on that perfect price.
Setting the price of your new product
First of all, you need to narrow down the pricing strategy that works best for your business best. Listed below are two pricing strategies commonly employed by companies.
In this type of pricing, the business sets a high price for its product initially and gradually lowers it with time. What this does is that it allows the business time to recover whatever costs it had to bear initially to launch the product quickly before a competitor(s) steps in and lowers the market price of the product.
While price skimming may seem like a great approach, bear in mind that the product will have to be of high quality and innovative and the business will need to ready to spend on the brand promotion and marketing it requires. Apple is a perfect example of a company that follows this strategy. When they launch a product, they usually price it higher and as soon as they release a newer product, they mark down the price of the first product. This helps them target a niche market. If this is not a viable model for your business, you may want to consider penetration pricing which is explained below.
Penetration Pricing is when a business initially sets the price of the product low in order to lure customers to a new product. This strategy relies on the idea of low prices to steer customers away from competitors and making them aware of a new product.
Companies that sell Android smartphones usually follow this pricing strategy where they offer their phones at nominal rates with attractive discounts in the hopes of turning customers into returning customers and increase their loyalty base. This approach helps them penetrate a wider market.
Things to keep in mind when pricing your product
This is a no-brainer. You need to account for the money it took you to manufacture and assemble your product. Also factor in your employees, distributors, and middlemen costs? Write down how much it cost you to release your product right from R&D to distribution and add up the costs. Make sure to keep a profit margin.
Know your competitors & the market
Analyse the market, how much your customers are willing to pay for the product. Conduct a survey to understand the price your target audience values your product at. Remember to price your product competitively to ensure that you have an edge over your competitors.
Account for other charges
Account for VAT, GST, and other costs that can affect the final price of your product. Depending on the varying charges in different locations, set the product price after taking them into consideration.
Utilise psychological pricing
This is nothing but a play on numbers. Rather than rounding off the price to Rs.500, price it at Rs.499. Ending with an odd number seems to work better visually.
Offer your customers something they can’t refuse
Introduce discounts and offers to lure customers and make your business a success. Once you have narrowed in on a price for your product, make sure to keep a tab on how your customers react and take their feedback to zero in on an optimal price.
In the off case that your business runs into losses, step back, and analyse your manufacturing costs and the market once again. Re-structure your pricing to ensure a healthy cash flow for your business at all times. You could also opt for alternative financing such as invoice discounting to tide over cash crunches. KredX is one such invoice discounting platform that has to date helped over 3000+ companies with working capital to grow and expand their businesses. To know more about our product offering, you can watch a short video here or reach out to our team at firstname.lastname@example.org.