How To Set The Price Of A Product: Must Know
The ingredient that successful business owners add to their success recipe is “Pricing”! Though several other factors are contributing towards the upliftment of a business, the most important be the pricing of a product. It is given much importance because this is one such factor that contributes towards the sustainability of your business.
There is no such one-rule-for-all method for pricing products and services of all types. Different products demand different strategies for pricing. Prices labeled to your products are sometimes attached with the quality of the products also by the consumers.
For example, a sofa set that costs 30,000 INR and the other that cost 85,000 INR will always be compared in terms of quality. The latter will be thought to be of greater and finer quality and finishing than the former.
Set The Price Of A Product
Setting the price of a product is very essential for increasing your marginal profit and defining your product as well.
Six Most Effective Pricing Strategies:
- Price Skimming
- Penetration Pricing
- Differential Pricing
- Value-Based Pricing
- Time-Based Pricing
These are a few of the most efficacious ways for deciding the price of a product. To set a price of a product requires way more thought and tickle to the head than just calculating and evaluating the cost and margin. Let’s go forward for in-depth research on these strategies-
Freemium is an acronym of free + premium. This method is implemented by firstly allowing the consumers to relish the exquisite nature of the product or service for free and then asking them to upgrade to the paid version to keep enjoying your product or service.
This way you intrigue them to pay for the upgraded version willingly impressing them with your free and premium product or service.
One such music streaming platform called Spotify uses this freemium strategy for their business.
You can listen to unlimited music for free but if you intend to stream music offline by downloading them or without ads and hindrances in between you have to upgrade to the paid version.
Freemium can be helpful for entering a new market with your product or to increase the sale of your new product or service.
2. Price Skimming
Price skimming mainly takes place with luxury items or products. Valued brands like Rolex, Mercedes Benz, etc., use this price skimming strategy to evaluate their products and services.
Consumers would willingly accept and sync with the high prices of these brands because the products are of great value to the consumers and serve their luxurious expectations.
Price skimming can only be associated with products that are meant to be sold in the upmarket. In case you are aiming to come with a new product in the market you ought to apply certain other strategies, in the beginning, to sync with the downmarket as well.
3. Penetration Pricing
Just the opposite of skimming pricing is penetration pricing. Penetration pricing inculcates the idea of drawing as many market segments as possible. It affixes a pricing range that can be easily reached by most of the market portions.
Penetration Pricing works the best if there is a huge production to meet the high demand for the low price per unit of the item. Most business enterprises primarily use this strategy to gather as much attention and buyers as possible and then gradually shift to different pricing tactics as they witness a growth in the profit and sale of the product or service.
4. Differential Pricing
This method of pricing includes selling the same product at different prices to different consumers. For example, tickets for an amusement park. Few tickets can be sold directly athelp enter higher prices whereas others can avail these tickets with a discount coupon on it, or win it in some college contests or shopping malls.
Differential Pricing can be a substantial game plan for introducing a new product or service in the market or for helping you to enter a new market at all. It allows logical and practical methods of pricing commodities or services so that you can maximize the profit procured by your business.
5. Value-Based Pricing
Pricing based upon the value that the consumers attach with the product or service is Value-Based Pricing. This way of pricing can be effective if your product is a greatly appreciated one with no or minimal alternatives in the market. Though the presence of alternatives can hamper this strategy, if the consumers perceive your product or service to be of high quality and functionality they can still pay for their cause.
For example, iPhones. Although people are well aware of the fact that iPhones are pretty much on the expensive side to be bought, they still invest in buying them for the functionality and the branding it does. Moreover, the features that iPhones come with can hardly be swapped by the other alternatives in the market.
6. Time-Based Pricing
Just like value-based pricing, time-based pricing can be done according to the demand and period during which the purchasing and selling of the product have to be made.
For example, booking of flights. When you book tickets closer to the date of traveling you have to pay a higher price for your ticket than booking it earlier from the date of travel.
Business enterprises have to keep customizing their settings to grab more appropriate customers fitting to their pricing strategy.
Best ways to Set the Price of a Product are :
Other than effective pricing tactics some other measures should be looked after for apt acceptance of the priced products. Such as:
1. You have to first and foremost survey your market. Surveying and exploring the market gives you a detailed idea of the product that could meet the current demand of the consumers and how your product could be different from the others that are already being launched or available.
- Inculcate the best pricing strategy that fits firmly with your product or service that is going to be a part of the market. Different products demand different pricing tactics. Knowing the need of the hour and setting prices accordingly can be a great strategy towards the expected turnover of your business.
- Set a price that can be well accepted and has relevance with the product or service in the sale. Pricing should not only be done by keeping in mind the favourability of your consumers but the price for selling a product or service should be sufficient to feed you with the costs incurred during the production and marketing of the goods and services.
- Keep a watch on the other factors such as taxes and shipping costs if you indulge in online and overseas businesses. Set a price that can be flexibly altered if there is a change in the above-said factors. The selling price of a product should ingrain all your cost for production.
- Be firm on your decisions. This could probably be the most important bridge between owning a business and earning a handsome profit. Be firm and sure of every decision you take towards the upliftment of your business and mainly the pricing policies.
Keep a watch on your competitors and the dynamically changing taste of your consumers. Also, you need to check on your pricing strategies and work upon them with complete coherence.
Pricing of a product or service should be done with keen knowledge and understanding of the market. Poor pricing can have adverse effects on businesses. In case of poor pricing, consumers might feel that a product is either overpriced if the quality is not up to the mark or they can even go for choosing a substitute instead of accepting your goods and services.
Both ways can harm the business’s profit and sales. You should always identify how your product is different from that of others and you can rate it accordingly.
Akash Tripathi is a Content Marketing Strategist at Top Mobile Tech. It is a blog where he covers all the tips & tricks related to Mobile, development companies, and more related to tech. Stay connected to the rest of the world with Top Mobile Tech. We bring the latest and critical news to your mobile and computer devices.