How often do you find yourself asking these questions; ‘How much should I charge for my product or services?’ Am I charging too low or too high compared to the other alternate suppliers?
If this happen quiet often, you are not alone. This is a challenge that entrepreneurs and business owners face and must deal with constantly. In this article you will learn about the 6 factor that you need to consider when setting the right pricing strategy for your product or services. This will give you the confidence to tell people your price and sell your products or services profitably.
A price is more than just a tag on the product or service, it communicates to your customers your business’s intended value positioning and determines how much money you make and keep, (your profitability).
I have had customers reject my services saying that am too expensive. I have also had customers reject my service, saying am too cheap and this made them doubt the quality of service. It is therefore important to find the right balance between providing value and your businesses profitability.
Here are that six factors to consider when determining your pricing strategy:
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Analyze competitor costs, prices, offers and possible reactions. You should consider your nearest competitor’s price, product features and evaluate them to check their worth to the customers. You can then decide to charge more, same as competitor or less.
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Select the pricing objective to decide where you want to position your market offering. The five major objectives that you can pursue are:
- Survival. In this strategy your intention is to stay afloat and cover essential costs.
- Maximum current profit. If you do not have strong competition, you can set a high price that produces the most cash flow or return on your investment.
- Maximum market share. In this objective you go for higher sales volume will lead to lower unit costs and higher long-run profit. This pricing strategy then allows you to reach a wider audience and capture the biggest share of the market.
- Maximum market skimming. This is a product pricing strategy by which your firm charges the highest initial price that customers will pay and then lowers it over time. As the demand of the first customers is satisfied and competition enters the market, you lower the price to attract another, more price-sensitive segment of the population
- Product /Quality leadership. In this strategy, you aim to provide the best quality product in the market, and therefore charge more your competitors. Having a clearer objective makes it easier to set a price.
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Determine the demand. The price you set will affect the demand level and impact your business objectives differently. In normal situations, price and demand are inversely related, in that the higher the price the lower the demand and vice versa.
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Estimate the costs. While doing this, you want to charge a price that covers your cost of production, distribution and selling of the product plus a decent return for your efforts and risks.
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Select a pricing method. When selecting, consider the cost of the product or service, competitor prices and the customer’s assessment of the unique features. The pricing method you decide should include one or more of these considerations. http://strategies-to-grow-business.blogspot.com/2011/03/how-to-price-5-methods-to-set-price.html
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Finally, select the price. Here, you must consider the following:
- Impact of other marketing activities like brand quality and advertising in relation to competition.
- Companies pricing policy,
- Impact of the price on other parties like the distributors and dealers.
Price is not just a number on your product or service, it produces revenue and can determine if you reap in huge profits or suffer losses. Effective designing and implementation of a pricing strategy is thus important for your profitability.
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This updated blogpost was originally published here: https://bit.ly/36icz2Y.
Achieve Success-Do it on Purpose
Patrick Juma
