Marketing

Strategies for How to Price Your Product or Service

September 13, 2013

Whatever type of business you are in you have to decide upon your pricing policy. In days gone by setting your selling price was quite straightforward; you decided how much profit you wanted to make on an item, and simply added it on to your cost price. So if you wanted to make a dollar profit and your cost price was $2 you sold it for $3. You could, of course, work on a percentage profit which many stores did. So if the profit was to be 50% and the cost price was $8 then the selling price was automatically $12.

Today all of that has changed and there are many ways of pricing your product or service most of which - but not all - are designed to get you a better return.

When thinking how to price your product one of the most important things to consider is that pricing your product to be cheaper than all your competition is not usually a very good idea. Apart from any other consideration, do you really want to be the lowest paid business owner in your niche? I very much doubt it. Yet many businesses think that if their price is the lowest they will automatically attract the most business. This could be true and yet you could still finish up earning way less than your competitors.

You need to approach this from your customer’s point of view. A higher price will automatically equate with better quality in the customer’s mind and they may well be prepared to pay the extra. They might even look at your lower price and think that there must be something wrong with the product or that it is poor quality simply because you are charging less. So not only does your competitor get more business, he makes more profit on each individual sale especially if your cost price and his are the same.

There is a very strong case for charging more than your competitor does, especially if your product or service stands out (and it should). What is the advantage of your product? Why should they buy from you? Do you offer better after sales service? Can you add value? ("Yes, our product costs a little more, but that\'s because we give you free service for 12 months").

Less than 100 yards from where I live is an independent baker. 50 yards beyond that is a branch of a famous supermarket. The baker charges much more for his bread than the supermarket yet he sells out every single day. It is all freshly baked on the premises and he does a range of "specialty" breads, together with another special each day that the supermarket doesn\'t.

Then there is premium pricing - selling a high end product. There are plenty of people out there who have a lot of money to spend, even in the present economy, and they will quite happily pay a LOT of money for a really top-quality product. In fact, many of them will only buy what they regard as the best. How many Philippe Patek and Rolex watches are sold every day - many of them costing upwards of $20,000? What would you rather do? Sell a Citizen watch for $50 or a Rolex for $25,000?

If you sold a Citizen watch every day of the year and made $20 profit on each, or you just sold one Rolex a year for $25,000 at the same percentage profit you would still make more money selling the Rolex. Oh, and you\'d only have to deal with one customer instead of 365!

When thinking about how to price your product or service there are a lot of points to consider. For instance, let\'s say you own a cinema. You could offer half price seats to seniors, who don\'t have a lot of money. This would be the difference between getting them in for half price or not getting them in at all. Provided your cinema was not going to be full in any case, if you get them in for half price you have made extra money that you would not have had otherwise.

Bulk pricing. Think battery manufacturers. How often do you need two batteries yet find you have to buy four because that\'s how they are packed? Can you do the same? You own a barber shop; offer every sixth haircut free - this way you will keep your customers coming back to you rather than going somewhere else. Maybe offer six bottles of wine for the price of five; your customers were only going to buy one or two bottles but now you sell six. Certainly you make less profit per bottle, but you make more money overall. My local supermarket has a permanent offer of 5% discount when you buy six bottles of wine.

These are only some of the ways of thinking about how to price your product. There are many others and if you start thinking creatively you can make extra profits from selling the same products. However, if you take nothing else away from this remember that, unless you can guarantee to sell a huge bulk, selling cheaper than everyone else is just going to make you the poorest businessman in your niche.

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