Are You Pricing Your Products Right?
How do you price your products? You keep a note of your production cost and you add a profit margin to it. Is that it? Is that all? No, but if only it were!
In reality, there are way too many factors that come into the scene. For starters, let me remind you of the cost of marketing and the relevance of competitors. Will all these major factors in hand, how do you balance your price such that it satisfies the comfort of your customers so as to keep sales flowing and, at the same time, ensure that you generate enough revenue?
It’s not easy and we are not here to make it easy for you; this blog will only guide you on streamlining all the factors that will help you find the optimum price for each of your products.
Let’s start with the basics.
#1 Retail Price
Every industry has a norm of how they set their prices. This includes a profit margin added to the production cost. A few hundred years ago, in a small neighborhood, that would be the ideal way of pricing your product. The basic is still the same. That is still how most industries set their retail prices. Of course, the profit margin varies from industry to industry. If you are new at business, you may need to do some research and find out what is the most practiced markup percentage in the industry.
#2 Manufacturer’s Suggested Retail Price
If you own a retail store, you may get suggestions from the manufacturer as to how much you should sell the product for. For standardized products, manufacturers may want to keep a steady price across retailers to maintain authoritative standards of the product. In those kinds of pricing, you cannot really include any added charges (like the cost of delivery, storage, maintenance). While this kind of pricing does not have you bother about pricing your product, this also does not allow you to set competitive prices to win over your competitors.
#3 Multiple Pricing
With multiple pricing, you price different bundles of products differently. Ideally, a bigger bundle will have less per unit cost. This will engage your customer to decide the best price for themselves and they will choose the bundle that is not profitable for them. For example, say you are selling 2 dishes at $4, 5 at $8 and 10 at $14. Now, your customer will either buy less and you will get a higher profit margin or they will buy more which implies more sale, and hence, more profit. It is a win-win for both the buyer and the seller.
A product bundle pricing also allows you to hide a cost which might seem a little higher if they are sold individually.
Discounting is one of the big tools that accelerate sales. You could lower the price and change the price tag in one product while in another you keep the price tag intact while you offer a discount percentage on that. Nearly all surveys show that the later incurs more sales.
Discounts can help you move old inventory or even launch a new product. However, excessive usage of discounting may work adversely where your reputation may be hurt or your customers get used to discounted prices and refuse to buy at the original price.
Discounts do not only sell discounted products. Discounts are a way to attract new buyers into your store where along with the discounted products they can also take a taste of the rest of the store. And it is not uncommon that when the buyer leaves your store, he buys more than just a discounted product.
#5 Psychological Pricing
This marketing strategy used an ‘odd’ figure to set the price, especially, a close fraction of a monetary whole. This motivates the buyer to perceive the cost quite lower than it actually is. To be precise, buyers tend to round it down to the lower monetary unit rather than the upper monetary unit. For example, if you price a pair of earning at $499, a buyer is likely to perceive it as $4 rather than $5. This strategy is extensively used across the globe.
#6 Competitive Pricing
Competitive pricing can work in either of the two ways – you set your price higher or lower. In this pricing strategy, you set your price considering the prices of various products of your competitors. Now, in one way, you can offer them a lower price and, in another way, you can consciously set a higher price to make an impression of higher authenticity and better quality. Both the ways may be enticing to customers depending on their class and the type of product you are dealing in.
Pricing is a strategic art of balance. Again, it is not a one-time thing as well. You need to keep an eye out on your market to see which forces are active at a given point. Accordingly, you need to keep updating the prices of your products.