What price should you ask for your product or service?

If you want to set a pricethat brings with it a healthy profit… something that will most definitely keep that wolf from howling at your door (and the bank manager at bay)… read our ‘4 Key Pricing Strategies’ below.

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4 Key Pricing Strategies

There are at least four ways to calculate your pricing structure:

1. Cost-plus pricing is calculated on the cost of producing your product or service plus an amount that you need to make a profit. This is usually expressed as a percentage of the cost. It is generally more suited to businesses that deal with large volumes or which operate in markets dominated by competition on price.
2. Value-based pricing focuses on the price you believe customers are willing to pay, based on the benefits your business offers them. It depends upon you being able to clearly define and demonstrate the benefits your product or service provides to customers.
3. Target-return pricing involves setting a price to achieve a target return on your investment.
4. Psychological pricing takes into account your customers’ perceptions of your price, including positioning, popular price points (the point at which they are more willing to make a purchase), and fair pricing (what they consider to be ‘fair’).

Pricing Tactics Discounting

Discounting can be a powerful short-term measure but it does carry some dangers too. You could use it to get rid of old stock or to encourage large orders. Consumers may balk at paying full price in the future or begin to perceive your product or service as somehow inferior to competitive brands. Discounting may send a signal to consumers that price is negotiable and that value can be given away. Trying to sweeten the deal by bundling additional products and services with the core offering can drive up costs (and decrease profits) and teach consumers that the product or service is not valuable.

Odd Value Pricing
If your consumers buy primarily on price, you can offer your products at a penny or two less than normal on bulk orders.

Low Pricing To Attract New Customers
You can sell a product at a low price with the sole aim of winning new customers.

Skimming
If your product or service is unique in the market, you can sell it at a high price. There’s a danger that you could just price yourself out of your market.

Penetration
To gain market share, you can sell your product or service at a lower price and gradually raise your prices.

Conclusion

However you price your product or service, take time to measure the impact it will have on consumer perception and demand and of course, on your company’s long-term profits.

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