WHAT DO YOU NEED TO KNOW BEFORE PRICING YOUR PRODUCT?
When it's time to launch a new product, enter a new market, or increase its market share, a company faces the question of pricing. There are many types of pricing strategies today. Among the different pricing models, you need to find the one that best suits your business. Pricing is a complex process, constantly changing and based on many different factors.
Setting the price of a product is one of the most important decisions made by business owners. The pricing model you choose affects almost every component of the business.
If you are planning to launch a new product/service or simply change the prices of existing products, here are the key factors to consider:
1. Availability of competitors.
The way competitors set prices for their products influences the pricing decision of an individual company. If you wanted to buy a washing machine, but the price at one store was 30 percent lower than in another, what would you choose? There is a high chance that you would focus on buying the cheaper option.
Some retailers provide an additional discount if you find the same product cheaper elsewhere. With so many items being sold online, consumers can compare the prices of many sellers before making a purchase decision.
2. Target Audience.
In addition to collecting data about the market and competitors, companies should thoroughly research their target audience. Will customers buy the product at the price you are willing to offer? How sensitive are your customers to prices? If you don't take this into account, they will choose an alternative or decide they can do without the product or service. Just as important is how much customers are willing to pay for the offer. Figuring out how consumers will respond to prices takes research and time, but without it, you risk losing sales.
3. Business costs.
Product costs, including the amount paid for product development, testing, and necessary packaging, must be considered when deciding on pricing. This also includes costs associated with promotion and advertising. For example, when a new product is launched, the cost of promotional materials can be very high. And these costs need to be carefully calculated to include in the cost of the product. Otherwise, you could have a loss.
4. Product positioning.
The price you set for your product or service will create a brand perception in the eyes of your potential customer. For example, you can position yourself as a leader in the luxury segment. Then your customers will know that they will pay a high price and get good quality.
Try to exceed customer expectations so that they want to recommend your company to others. This will help spread your brand to a larger audience.
5. Economic conditions.
When setting prices, it is important to consider the prevailing economic conditions in the market. During a recession, consumers may have less money, so a company can lower prices to influence consumers' buying decisions.
The economy affects many aspects of people's lives. When the economy goes down, customers' ability to pay also goes down, forcing businesses to adjust prices according to the financial ability of the target audience.
As you can see, there are a number of external and internal factors that can affect the price-setting process. All of these factors determine the upper and lower price limit. Understanding them will help you make informed pricing decisions.