Pricing is one of the most important decisions in the product development process.
This article will explore various pricing strategies that can help businesses achieve sustainable success.
The strategies discussed include value-based pricing, market-oriented pricing, cost-plus pricing, and competitive pricing.
By understanding and utilising these pricing strategies, businesses can put themselves in a better position to succeed in today’s economy.
What is the “right price”?
The purist answer is the “right price” is whatever your target market is willing to pay once they know the unique value your product offers.
But to determine the right price for any product, you must also consider many other factors.
Factors including production costs, overhead costs, and desired profit margin.
It is also vital to be aware the price of similar products in the market.
Cost vs. Value
When thinking about pricing your product, it’s important to understand the difference between cost and value.
Cost means how much investment it takes to produce and deliver the product.
Value is the perceived benefit of the product to the customer.
Base your price on value.
The goal of your marketing is to communicate this value to your audience so they are happy to pay your price.
Research the Market
A good way to come up with pricing ideas is to examine the market and see what other companies are charging for similar products.
This gives you an idea of what people are willing to pay, but also helps you set a standard for pricing.
You can set your price below the competition’s to undercut them.
But if your price isn’t the cheapest in the market, there is no strategic advantage in being second cheapest.
A far better (and more profitable) strategy is to position your product as the luxury version and set the price high
Know Your Target Market
Get to know your audience well.
Create a customer profile based on data obtained through market research of your potential customers.
Part of this profile includes their buying behaviours and attitudes. This will tell you how much they’re willing to spend.
This research will also reveal which problems from your audience is suffering.
You can then position your product as the solution to these problems.
Some problems have a real financial cost.
If the price of your product is less than the cost of the problem, your prospects will buy.
Your price should at least cover the costs of making and delivering the product.
One way to start with pricing is to figure out production costs, and then decide on the margin you want to receive per unit over that.
Combined with your marketing research on customers and competition, you can find the right price that will make your offering both profitable and a good deal for your customers.
Keep in mind the fixed costs and the variable costs that you can adjust if you can have some flexibility.
Test the Market
There are several ways to test the market with your pricing.
You can hold focus groups where you present a few select audience members with a sample product and get their opinions on how much they’d pay for it.
You can also offer a soft launch to see how much you sell at your chosen price.
Offer Flexible Pricing
One way to solve the pricing problem is to offer a number of pricing options for your customer.
This is a win-win because it gives them more choices and helps you sell more.
You can create different levels, from Basic to Deluxe.
The lower levels have fewer features and a lower price tag, while the higher levels offer more at a higher price.
Another flexible pricing option is to offer bundles of products together.
The bundle is priced lower than if the customer bought each individual product alone.
Start Considering Price Early
Don’t wait until the last minute to start thinking about price.
In the early research phase of your product development, start thinking about how you will price it and researching the market and your customers.
It’s a crucial decision that shouldn’t be taken lightly.
Pricing Strategies for Success
In conclusion, there are many pricing strategies available to achieve sustainable success.
Businesses will all have different objectives, and so it is important to choose the right pricing strategy to achieve yours.
The most important thing is to be aware of the risks and opportunities involved in each pricing strategy, and to make sure that the chosen strategy aligns with your goals.