A competitive pricing strategy, even if it’s a basic one, should be part of your marketing plan. Anyone can sell something for nothing. The goal is to figure out what you need to charge to make the profit you want, and if that price will fare well in the marketplace. If the price is too high, your business might never get off the ground. If you price is too low, you might get a lot of initial sales, but in the long run, your profit margin won’t sustain your continued operation.
What you’re selling and how you’re selling it affect your pricing strategy. You will make different pricing decisions based on whether you’re primarily selling a product or service and whether you’re selling online or offline.
Product vs. service
If you’re selling a product, profit margin is a factor in determining your pricing. You can determine profit margin for a product by considering cost of production and marketing of the product — including labor, facilities, and materials — to figure out what the actual cost is to produce one unit of the item. But, you should look at average market price.
Then, price your product in a space within that market. Think about if you want to be a low-cost leader, a value player, or if you can command a higher price because of brand image, quality, or features.
Selling a service is not all that different from selling a product. The perceived value and average market rate are the main factors in determining pricing for services. Take into consideration the perceived value of the service and the time it takes to perform it. How much is your time worth? You can also look at the going rate for the same service in your market area or similar areas to help determine a fair market price.
Online vs. offline
Customers who shop for products and services online have access to the World Wide Web. Remember that. So, when they find your product in their search results, they also see 20 comparable products in the list. You’ll want to ensure that your pricing is similar to what your customers will find elsewhere online or you need justify any price disparity by showing higher value or quality.
Pricing is not an exact science
You’ll find out quickly that pricing is not an exact science. A lot of your decisions will depend on your particular niche, goals, product, market share, and many other factors. Shrewd business owners use several factors to make decisions regarding pricing.
You need to think about and adopt a deliberate pricing strategy. Most businesses, online and off, guess at prices, and most go out of business within a few years as a result. Do your research, and when necessary, make adjustments quickly.