How To Price Your Products Correctly?

The Globe and Mail identify having great products and services, does not necessarily guarantee success. In order to make the most profit from your goods or services, it is crucial to price them correctly. To successfully accomplish this, knowing your target market and how much they are willing to pay is essential, furthermore conducting market research on your competitors will give you an idea as to what the average price would be. Other elements may include product bundling, market segmentation and tangible and intangible benefits of what you are selling. When pricing your products, it is important to ask yourself the following questions:

  • How much is my customer willing to pay for the product or service?
    Conduct market surveys and focus groups to obtain an idea, as to how much your customer is willing to pay for your product or service. For example a product costs £1 to make, and can be sold for £2. This type of pricing is cost-plus pricing, a lot of companies use this strategy, however it is not optimal. If your customer is willing to pay £1000, for a product that costed £100 to make, then you have a successful product. It all boils down to, how much your customer is willing to pay.
  • How do customers wish to buy the product or service?
    Whether you are considering to sell your product for a one time fee, annual basis or monthly basis there is no answer, which fits all situations. Create a model that fits with how people want to buy your product,
  • How should I react to competitors prices?
    When looking into your competitors there are three main questions to consider: Who provides an alternative to my product? Comparing mine, is mine worse or better? Are my customers phased by this? If your product is better, find the competitive price difference and price upwards. If your product is not as as good, find the competitive price difference and price downwards. Your prices should change, if your competitor changes prices.
  • How do I adjust current prices?
    Observe customer buying habits and conduct customer research interviews and focus groups. This will give you an idea when to adjust your prices. Different customers have a different willingness to pay, and even the same customer will vary in their willingness to pay based upon the purchasing occasion.
  • Have I provided customers reason to pay more for the product/service? 
    If a branded product sells for £2 and the same product, but of store brand sells for $1. It is the branded company’s job to make sure the customer understands the difference and values that difference.
  • Can I offer different levels of products/services at different price points?
    Giving your customers choice is key, offering at least three price levels of any product: basic, upgraded, premium. For example: Apple entered the market 16, 32, 64 GB laptops, if they only offered 16GB, they would have sold a lot, however would have missed out on the 64GB customers, who are willing to pay more.
  • Can I base my price partly on intangible benefits?
    Many businesses base price strictly on the product or service itself, but some companies might be better off tying their price to the intangible benefits they deliver to customers. For example: Hershey’s chocolate, you are getting a great chocolate bar. However, with Godiva (higher priced) 

Read more at: http://www.theglobeandmail.com/report-on-business/small-business/sb-tools/top-tens/ten-questions-to-ask-when-pricing-your-product/article14740789/

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Psychology of Pricing

By guest blogger: Christoph Meili at Input Consulting AG

For many years pricing strategies and pricing have been based on economical thinking. In the last few years insight has gained ground that pricing is more than just facts and figures. The importance of knowing the psychologically motivated aspects of your customers’ behaviour, that make people act irrational and using this irrationality in your pricing has increased. We distinguish between two types of pricing: economical pricing – improvements on this side are usually the first step to pricing excellence – and behavioural pricing. Our experience shows that the potential in optimizing your economical pricing is about 2% of EBIT while you can gain a much stronger growth in EBIT with a behavioural pricing of about 5%.

Behavioural pricing is not about tempting your customers to buy your products for a higher price, it is about fulfilling various benefit dimensions including emotional aspects and getting better prices for that. For example: research shows that people are loss aversive. But how can that theoretical knowledge be put into practice? For example, you are selling two products within a certain category at different price levels and you want to sell more of the expensive item. You will succeed by introducing a third, even more expensive variety will reduce the loss aversion of your customers. The majority of your clients will buy the product with the medium price. Why? The cheapest one may lack quality, the most expensive product may be overpriced. In buying the medium price alternative the customer reduces his risk of making the wrong choice and therefore reduces his risk of being emotionally disappointed. You are providing your customer with additional value and getting a better price for that!

There are many such effects, which are relevant to the behavioral purchasing of your customers. Input Consulting, a Swiss based Strategy and Pricing Consultancy, described the most important effects and defined seven golden rules on how to use behavioral science in your pricing.

Read more at: http://www.input-consulting.ch/leistungen/pricing/check-up-preispsychologie/

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How Effective Is Value-Based Pricing?

Marketing Donut explain how value-based pricing is the most highly recommend pricing technique by consultants and academics. The basic concept involves setting a price to capture the majority of what your customers are willing to pay. You are focusing on setting a price to capture the value, that a potential customer receives. The following can help determine how to:

  • Identify your customer’s second best option. If your customer won’t buy your product or service, then what would they choose?
  • Determine the price of the second best option.
  • List all of the ways that your offering is better than the second best option. Estimate how much you think these differences are worth to your customers?
  • List all of the ways that the second best offering is better than yours. Be very honest here. How much do you think these are worth to your customers?
  • To calculate the best price — take the price of the second best option (step 2) plus the value of your advantages (step 3) minus the value of the second best option’s advantages (step 4).

Key attributes that differentiate a product include:

  • Brand
  • Quality
  • Physical Attributes
  • Service
  • Ease of Purchase
  • Style

Read more at http://www.marketingdonut.co.uk/marketing/marketing-strategy/pricing/why-value-based-pricing-works-best

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The Essentials of Pricing Strategies For Your Business

Chron disclose how pricing is a major element of a company’s marketing strategy. The prices you establish for goods and services impact your marketing goals, strategies, profitability and value proposition. Planning effectively can help weigh the long-term ramifications of building certain price points and including them in promotion. When pricing strategies it is vital to take into account the following:

  • Value Proposition
  • A promise of value to be delivered and acknowledged from your customers, that the value of your goods and services will be appealed. It is important to weigh the benefits you offer to your customer. Whether you are choosing high, mid or low pricing point, you must consider the benefits and advantages of pursuing each one.

  • Profit Objectives
  • Pricing influences your profitability. The greater the prices your customers pay, the higher your profit potential. Weighing both margin and volume in pricing decisions is key, gross margin is the percentage of profit you make when comparing revenue to cost of goods sold.

  • Goals and Time Orientation
  • When pricing taking into account whether to price with a short-term or long-term orientation is an essential part in ensuring your pricing relates to your overall company goals. Your goal ideally is to have a consistent value-driven approach, in order to obtain price optimization.

  • Marketability
  • If your customers do not see the value of your products, then ultimately your product is futile. Conducting market research can help gauge the value customers place on your products features and benefits.

Read more at http://smallbusiness.chron.com/essentials-pricing-strategies-80466.html

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Should You Measure Pricing Elasticity?

Pricing Brew state being able to know what is going to happen before you change prices, would be an incredibly powerful insight. With this kind of insight, you could model potential customer reactions to new prices and even understand what will happen to revenue and margin.

The answer to being able to have such insight, is through the means of price elasticity. It is a very powerful tool, but it is often overlooked by business-to-business companies. Pricing Brew carried out a survey, to obtain a better understanding as to why companies are not taking advantage of this pricing capability.

From their results they found the following key reasons:

  • The daily grind and constant fire-fighting tends to hold pricing teams back from understanding the concept and capabilities of price elasticity.
  • The traditional methods for measuring elasticity do not work in a B2B environment. Few companies have good data around the deals that their sales teams quote and the win/loss outcomes.
  • Conflicting messages from pricing experts on B2B price elasticity give people pause.

Are You Pricing Your Services Accurately?

Instant Shift reveal pricing your services as an independent creative can be a much complex issue than assessing a rate based on what your competition chargers/offers, the current state of the economy or by determining a rate from a salary you once commanded as a full-time employee. Being honest with yourself when pricing your services, can help you to structure the most optimal business model for your needs. Ask yourself the following questions to gain a more broad perspective:

  • What is in it for you?
  • Are you approaching pricing contextually?
  • Have you set clear parameters around rates?
  • How much do you want to work?
  • How quickly are you paid?
Read more at http://www.instantshift.com/2014/09/15/pricing-services/

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How The Right Pricing Can Boost Your Profitability

HBR questions what is the fastest way to profitably sell more of whatever your company sells? It has been argued that it is better pricing. There are many reasons as to why better pricing should be a priority for your company. Firstly if your company is not setting the right prices, there are hidden profits waiting to be tapped, small changes in price can lead to big profits and many industries prices can be changed on over night and start generating more profits the next day. The following steps can help in improving your pricing:

  • Instil confidence in your front line
  • Use compensation to align your Sales Forces’ interests with profit
  • Increase profits by offering choices
  • Recap results by involving the C-level 

Read more at http://blogs.hbr.org/2012/07/use-pricing-strategy-to-boost/

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How Important Is Pricing

Net NBA see how pricing strategy is one of the four major elements within the marketing mix. Pricing is a vital strategic issue, as it relates to product positioning and affects fundamental elements. These include product features, channel decisions and promotion. The following steps can help in determining the pricing of new products:

  • Develop a clear marketing strategy
  • Make marketing mix decisions 
  • Estimate the demand curve
  • Calculate all costs
  • Understand environmental factors
  • Set pricing objectives

Read more at http://www.netmba.com/marketing/pricing/

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How To Win The Market Via Pricing

Industrial Distribution delve into the ongoing focus that most distributors are seeking to summon every advantage possible within their given market. No matter what that advantage may be, whether it is hope to gain is over their competition or over their past performance – every opportunity to win the market is considered. Having a strong pricing strategy can help in securing that your business is the most profitable and successful. The following can ensure you stay ahead of your competition:

  • Stop discounting blindly 
  • Ensure timing is key
  • Measure your data
  • Take informed decisions 

Read more at http://digital.inddist.com/industrialdistribution/september_october_2014#pg44

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Strategies for Increasing Your Pricing Power

Modern Distribution Management highlights that it is no secret, that the biggest players in a given market wield a lot of power, when it comes to pricing. Businesses can lower prices, leaving others scrambling. At the same time, businesses have the power to raise prices without loosing profits. The following can help in gaining your own pricing power:

  • Implement strategic pricing
  • Get paid for the value you add
  • Ensure your customers fight for you

Read more at http://www.mdm.com/blogs/1-management-strategy/post/32352-strategies-for-increasing-pricing-power?utm_content=buffer0a75b&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

Learn how Stratinis can endeavour to optimize and manage your prices through our pricing software