Setting the right price for your product isn’t a particularly straightforward task to undertake. Perhaps the idea of a ‘perfect price’ is faulty; maybe what we really need to do, when faced with the decision to fix a price, is to find a balance between our desire to make a profit and our customers’ perception of our product’s worth. But arriving at the ‘right price’ (whatever this means) is never as easy as this conveniently posited ‘balancing act’ idea might suggest. There’s a lot more involved, and it’s this fact that makes a review of pricing strategies for businesses important.
Whatever the steps we decide to take in our quest to set a mutually agreeable price, one that both buyer and seller will accept, we must remember that our prices should at least reflect the value that our customers put on them. We could convince buyers that our wares are more valuable than they initially think; but in the end, it is they, who will make the ruling on the appropriateness of the prices we assign. Of course, this won’t be the case if your business is a monopoly. But true monopolies are rare these days, so it’s likely that your business isn’t one.
Let’s assume that your business is operating in the typical market economy, with several sellers and numerous buyers. You have no monopoly power, and customers aren’t shy about punishing unreasonably pricey brands, by doing business with the competitors of those brands instead. How do you avoid being battered by the demands of picky buyers on one hand, and high production costs on the other? How can you come up with a price that is fair to you, and to your clients as well?
Here are five tips that you can use to get your pricing right.
Keep prices above junk status
You might be tempted to drop prices to attract buyers. This works sometimes. But beware of setting the price so low that people begin to think that your product must be low quality. They’ll probably assume that your offering has some hidden defect, because (as far as they are concerned), that’s the only plausible reason anyone would sell a thing for a significantly small fraction of its average market value.
Competitive pricing might do your business some good if you can maintain a fair balance between being affordable and passing for cheap, low-grade scrap. It could have the opposite effect to what you intended it to achieve: people could avoid your product, in the belief that its markedly reduced price signals compromised quality. Instead of being an incentive for customers to buy more, it becomes a reason for them to purchase less. The price cutting policy, in this case, winds up being a loss-triggering strategy.
The best salesmen are able to convince buyers of a product’s worth, and make them think less of its,p otherwise apparently exorbitant price tag. Never ignore the power of the expert seller to diminish the prominence of price as a determining factor in a customer’s purchasing decision.
Once you can understand what motivates a customer’s buying actions, you will be better able to get them to see that your offering has great value. They do not think much of the thing you want to sell them; what they are really concerned about are the benefits they will derive from it. You are not pitching an object to them; you are persuading them to accept what it will do for them, for a price. Show them that you understand what they need; tell them how your product will meet this need; then point out the ‘extras’, the other benefits they’ll get from using your product that they won’t find with competing brands. True, there’s a skill to getting this done in a convincing way, but this skill can be learnt.
- Your quality could give you room to breathe
If your brand is known for putting out the best products of its niche to the market, you will have some space to manoeuvre with pricing. The public will find an excuse for your raising prices a little,(the excuse being that it probably costs more to make higher quality products).
However, be careful not to abuse your market-leading position. Customers typically have little patience for exploitative pricing, and will be quick to shift allegiance to seemingly lower ranked, but relatively less ‘dishonest’ competitors. As is the case with every other aspect of life, moderation is key. As you raise prices, ensure that you are constantly working to raise the quality of your offering, to stay ahead of the chasing pack. If you rest on your laurels, they could wipe out your advantage, come up with equally good products, and attach lower prices to them.
- Don’t slash bulk sales prices too savagely
Another popular pricing tactic deployed by businesses is to reduce prices for large volume sales. They charge lower prices per unit, when they sell greater quantities.
Just be sure to take all the possible factors involved, before going down this route. For one thing, it’s hard to convince people to buy smaller amounts of your goods at a higher per unit price if they are accustomed to purchasing larger quantities of the same goods at a lower per unit price. There’s also the risk that you might diminish your chances of making a profit that’s worth all the money and effort you’ve put into the business.
Experts advise that you carefully examine the possible gains of using volume pricing strategy (as it’s called), and measure them against the losses that might accrue if it fails. This cost-benefit analysis should be done before deciding whether to dive into this strategy or not. If your projections suggest that you can do well with it, be careful not to go too hard at cutting prices. It could prove counter-productive. Again, moderation is key.
5.Consider your location
Prices tend to vary with location. Transportation costs might play a role in determining a product’s final price. Other factors, such as the cost of living in specific regions, are also important. The price of a carton of biscuits in Hadejia, Jigawa State, might be lower than what it would go for in Aba or Ibadan, owing in no small part to the variance in the costs of living among these cities.
When making the decision to set prices for your goods, always consider the prevailing market price of the district, town, state or region you are selling to.
Don’t be in a hurry to slap a price on any item. Take time to think about every price option before you, and choose the one that fits with rational expectations for your enterprise. The fate of your business could well depend on this.
For more pricing tips, read our article, How To Raise Prices Without Losing Customers.