Setting a price for your products or services is single handedly the hardest decision most businesses face when establishing themselves in a market. This is because it plays such a unique role. It is where all other business decisions come together and if your price isn’t right, it can result in failure of your product, service or even worse, your business.
Price is inextricably tied to value or at least perceived value from a customer viewpoint. I had a friend who started selling face creams through David Jones many years ago. She worked a price based on cost-plus pricing where she calculated the cost to develop the product and then added a mark-up to arrive at a final price. From memory, I think the face cream was approx. $110-$120.
Sales were slow, which struck her as odd given her product was far more reasonably priced then any of her competitors. That was her mistake. She was selling a high quality product with rich ingredients, through David Jones, an upmarket department store. Customers assumed the product was not as good, because it was so much cheaper. She altered her pricing to a competitive above market strategy and started selling her face creams at $270 a pop. She couldn’t keep them on the shelves!!
However, be warned, it works both ways. Another friend of mine has a customer who always asks him to “sharpen his pen” when he sends through a quote. Time and again this customer wants to feel like he’s getting a “really good deal”, but the original quote was always the fairest price for the work, so either my friend risks losing the job or accommodates the request, possibly at his detriment.
There are many pricing strategies you can adopt to set your price, but I would advise in your first steps:
- Check what your competitors are charging,
- Consider how elastic the demand for your product or service is; and
- Whether your product or service falls into a niche category.
Then establish from there which pricing strategy will work best for you. If you need some help, give me a holla in the comments section below. Let me know what industry you work in and where your business is located and Ill see if I can decipher the best pricing strategy.