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)