01 Aug SET PRICES TO GENERATE PROFIT
How to set prices in your business
- Do you understand the market well enough?
- Do you understand your product or service well enough,including all associated costs?
- Do you understand your ideal customer well enough? Have you surveyed customers to-test prices?
- Have you checked your competitors’ pricing?
If you can answered yes to any of these questions, then you should review the pricing strategies for your small business.
Factors that Affect Pricing Decision
Sometimes, having a pricing objective for your business is not enough because there are a lot of factors that you must consider before setting prices in your business. Such factors include the cost and demand of the product and/or service, the customer demographics,the external environment, nature of the products and/or services, product or shelf life, as well the method of promotion and distribution. Now, let use examine and analyse each of the factors that were mentioned and understand what they entail.
1. Target Customers
There are three major elements that can affect how your target customers respond to the products and/or services that you are selling in the market: how they determine the value that your products/services offer to them, the number of customers buying and how sensitive they are when prices are increased. A good way to start is to ask yourself these questions:Are your target customers willing to purchase the product and/or service at a given prices?
Is the value of your product and/or service equal to its given price?
Are they willing to pay for the products and/or service your business has to offer
What are the things that you can do when a customer opts another brand? How will you get them back?
Determining how the customers will respond to your pricing strategy often involves good and fair judgment, as well as proper and thorough market research.
2. Competitor Brands
Another element that can affect your pricing decision is how other companies are pricing and selling their products and/or service in the market.
3. Cost of Production
The cost of production is one of the most crucial factors in pricing decision. Obviously,you cannot sell your products and/or service at a price that is lesser than the cost of production.
4. Supply and Demand of the Product
According to the law of supply and demand, the prices of the commodities will fall if there is an oversupply of goods or service and the prices in the market will increase once there is a shortage of products and/or services.
5. Types of Pricing Strategies
Product, place,and promotion, pricing is another most important components of the marketing mix. For entrepreneurs to grow and make their businesses successful, they must take pricing strategy seriously as it helps them boost their sales and profits by determining the perfect price point.
Before you pick a pricing strategy, make sure you have a primary goal. Your goal will determine the type of prices you offer, how you’ll market it, and which customers you should aim to reach. Here are some of the goals you can aim for:
Set Your Goals First: Before Setting Your Prices
Acquire New Customers – You’re offering a discount because you want new customers to be interested in your products or services. With a discount, they can try what you offer with lower risk on their part. Plus, if the discount is a limited time offer, new customers will have a reason to try your products and services now, rather than later.
Increase Your Sales – Your goal is to sell more units of your product or service, regardless of how many customers buy. This could mean going for volume sales, bundling products with each other,and having customers buy as many items as possible before they check out.
Gain Repeat Customers – Unlike acquiring new customers, getting repeat buyers requires a different mindset.You’re using the price to encourage brand loyalty rather than enticing people to try your products. This is usually delivered via a loyalty program for current customers—and it works. According to research from Colloquy, a loyalty marketing firm, 55% of people enrol in loyalty programs to get discounts on purchases.
Get Rid of Old Inventory – Sometimes,you need to run a discount just to clear your old inventory. Perhaps you need to make room for new products, update a product line, or focus on better performing products. Contrary to having a goal for increasing sales, the margins aren’t as important here. What matters is how quickly you get rid of stagnant items that otherwise wouldn’t sell.