You've worked hard on your business idea. You've got a product that you're confident the world wants, or perform a service that people need, and you're ready to put it on offer and monetize it. But how do you assign a number to something you've worked so hard to bring to life? It can be a daunting task, but your pricing needs to be realistic and market-based so that you can gain customers and turn a profit.
How Do I Know What Price to Put on Something?
There are a ton of strategies when it comes to pricing"¦.but these also present a lot of questions. Should I just match my competitors? Should I try to be more affordable than they are? Is my product/service worth more than similar products/services they're selling? Asking yourself these questions can help you establish which pricing strategy is right for you.
Pricing is something you're faced with over a product's lifetime too, not just when you're bringing something new to market. What about sales and clearing out old stock? We dive into those questions as well in this helpful pricing guide.
What's In a Price?
Remember, the essence of a price comes down to value. Everything on Earth has a value associated with it, even if it's relative. So how does your business provide value when it comes to bringing something to market? Sometimes, it's as simple as ordering in a product that isn't available anywhere else; but the value your customers get starts at the bottom, with the production of the product, the costs associated with getting it into your shop, all the way to advertising costs. As a business owner, you need to always keep in mind your costs when considering how to price a product so that you can make a profit and stay in business at the end of the day. Here's an example of a breakdown and how to arrive at a price:
What Are Some Different Pricing Strategies?
This strategy is often used for new products that are perceived as unique in the market. Because they are highly desirable, they are priced high to begin with, then lowered over time. As an example, think about every new Apple product"¦or rolled ice cream.
Market penetration for a brand new product can be a huge challenge, and that's just what this pricing strategy is designed to help with. Penetration pricing means offering your product at a relatively low price to capture more market share, more easily. What you lose on markup however, you need to make up in volume.
Status Quo Pricing
Status quo pricing is pretty self-explanatory; this is where you follow the market's lead on pricing your product and charge the same price as your competitor. Status quo pricing doesn't take into account supply and demand, and is a little uninformed, but for that same reason, it's simple to implement.
Loss Leader Pricing
Loss leader is an interesting pricing strategy, but one that can work well if you have other products or services on offer that you know people want. Loss leader is essentially offering a product or service below cost to get people in the door. Think of $0.10 cent wing nights at pubs (where the owners know patrons will buy drinks), or products at a hardware store that have related offerings (i.e. patio chairs might be offered at cost but the tables, cutlery, dishware, and umbrellas are all priced at a markup).
What Not to Do When It Comes To Pricing
Simply put, bait pricing is using false or misleading advertising to get customers into the store, followed up by high pressure sales tactics to coerce them into buying your product.
A lot of payment processors use this, especially when it comes to offering low processing rates that are simply too good to be true. They get merchants to sign on the dotted line, only to lock them into a contract where the prices keep getting higher every year or even every quarter.
Deceptive pricing is also pretty self-explanatory. Some examples you might not be familiar with though are:
Promoting a discount from a "regular price" that is actually not the regular price, in order to make your product appear cheaper than normal. Double ticketing items so customers will bring an item to the till to confirm the correct price, whereupon they are asked to pay the higher ticketed price.
Discounts: A Way To Get Them In The Door
To put it flatly, discounts mean you're willing to lose out a bit on some potential revenue for a purpose. That purpose could be simply delighting your customer with a great deal so they'll want to come back again, or it could mean enticing new customers to walk through the door because of a special offer. Either way, discounts have been proven to work to temporarily increase sales, but you'll want to be strategic about it. Here are a couple of ways you can implement discounts in your overall pricing strategy:
Discounts offered for when customers buy more than one of your products or services at one time. While your markup may be slightly smaller on the individual items, you benefit from a greater upfront cash injection as they are buying more than they might have if no discount were offered.
Seasonal or Old Stock Discounts
Whenever you've got inventory that's not moving, you might as well think of it as a safe you don't have the key to. You know there's money inside, but you can't open it. You can have all the money to yourself if you want (but it's stuck in the safe) or you can choose to pay someone with some of the profits if they agree to open it for you. You don't get as much money as you might have if you'd had the key at the right time"¦but it's better than no money.
That's essentially the logic behind discounting items when they're out of season or no longer fashionable. You might not make as much as you would have one time-you might even lose on the stock-but you're busting open that safe and getting what you can out of it, rather than just staring at it and letting it clutter up your space.
Pricing your product or service can be intimidating at first, but with a little forethought, you can feel confident you're making the right decision for your customers and your business. Hopefully these pricing strategies can help you get started on taking what your business has to offer the world to market. Good luck!