Marketing Concept - PRICING STRATEGIES

Pricing a product is one of the most important aspects of your marketing strategy. Generally, pricing strategies include the following five strategies.

• Cost-plus pricing     :     Simply calculating your costs and adding a mark-up
  
• Competitive pricing:     Setting a price based on what the competition charges
  
• Value-based pricing:     Setting a price based on customer`s belief on your products` worth
  
• Price skimming       :     Setting a high price and lowering it as the market evolves
  
• Penetration pricing :     Setting a low price to enter a competitive market and raising it later

Here are the factors to consider for creating a higher profit margin.

What factors to consider? 

 1. Identify your Product Pricing Goals

The first step is to be clear about what you want to achieve with your product pricing strategy.  Is it maximizing profits? Or maximizing market share with your products?

2. Know your Costs

After you learn everything about the costs of running your business, you can come to product pricing. The first thing that we need to do is to cover your costs and then consider the profit.

To be more precise; let’s split costs under two headings:

Fixed costs: Regardless of how much you sell, it is the cost that you always need to factor in. For instance: rent, labor costs (salaries), materials and so on.

Variable costs: This type of cost mainly covers extra things such as additional materials, labor or transport, etc. Therefore, they can fluctuate over time. The only way to make profit, and ensure cash flow is to calculate the cost of producing your product and service, and then set a higher price than the variable costs.

3. Know your Customers

Another important aspect to consider when setting the product pricing strategy is the customers. It is vital to investigate what the customers want from your product or service. Are they driven by the cheapest version available?  Or they consider that expensive is equal to quality? What role does the price play in their purchasing decision?

Answering these questions will give you a better insight into who your audience is and what should be your selling price.

4. Market Positioning

Understanding your customers is also important when it comes to deciding what should be your market position. You need to make a decision.

Do you want to be the most expensive?
Or The most luxurious or high-end brand in your industry?
Or maybe you want to be the cheapest one?
Of course, you can always choose to be somewhere in the middle. Those are all different price points.

Why it is so important to decide in which direction you’ll go?

A brand perception in the eyes of your potential customer is created by the price that you set for your product or service. For example, you can position yourself as a low-cost leader, where customers will know that low price is your strongest weapon.

5. Product Value

There are many factors that should be taken into consideration when deciding on a product pricing strategy.  Therefore, it would be useful to run a few pricing calculations in order to come up with the best solution. There are a few of them that you can use as a starting point:

• Cost-plus pricing
• Fair pricing
• Price based on the value

6. Do your Market Research

Market research is necessary in order to decide how much you are going to charge for your product or service. For products and services already available, market research can tell you if you’re on a good path.

Conclusion

With above discussion, we can conclude some of the most important things to focus on –

• Listen to your customers
• To keep track of your competitors
• Have a budget action plan in place

 In order to maximize profitability, one must achieve balance meaning finding an optimal price.