Coming up with a product is always an awesome experience for any business. Besides the fanfare of launching it to the public for the first time, there is always a lot that goes on behind the scenes. This includes testing the product among a select few customers or target group and then making a few minor improvements before the actual launch. Another thing that happens behind the scenes is finding the funds for the launch.
However, the biggest issue involves coming up with a price that balances both the needs of the consumer and producer. In this blog, you will learn the importance of pricing. Your price shouldn’t be too high because you risk losing most of the price conscious buyers. On the other hand, if you set a low price, you will get a lot of customers. However, you won’t make a lot due to low profits. In that case, you have to come up with a strategy that will help you come up with the ‘perfect’ price. Below are some of the pricing techniques that you can use to test the market, and then choose the most appropriate:
This is an awesome strategy that involves showing both the previous price, which is the original price and then showing a discounted price. The essence of showing both prices is to convince the customer to purchase the product because they are getting a god deal. Many companies use anchor pricing as a way to get customers to purchase medium priced items. They usually do this by placing a higher priced item next to a cheaper one. However, remember to be realistic with this pricing strategy. For example, if you set the discounted price too low, customers will be suspicious, and they’ll lose trust in your products.
This is a strategy that involves matching your competitor’s price. More often than not, you will set your prices a bit lower than the competition in a bid to attract most of the customers. This is a sure way to get customers that are price conscious. You have to be careful as sometimes this might lead to a race to the bottom by your competitors, leaving you with a very small profit margin.
This method involves making your prices higher than other similar products in the market. The idea it to create the impression that you are more prestigious than other brands. A prestigious brand is always accompanied by a premium price, and it always looks cool to buy a premium product. This method enables you to attract a different kind of market – those that love exclusivity and luxury. Unfortunately, the applicability of this method is limited since not everyone can afford premium items.
Loss Leading Pricing
This is a method that involves selling one product at a loss in order to attract customers to other related products. This usually works when you have more than one item on offer to your customers. Many people might walk in expecting to buy the discounted product and end up buying other products because they find that it is more convenient to buy the remaining items at the same place. You can also bundle products in a package with one item being sold at a loss and the rest at normal price. This enables customers to buy more products, which covers the price of the loss-making product. The problem with this approach is that customers can easily get hooked on the discounts. Once they do that, they will avoid paying the full price, and that may hurt your overall earnings.
Many people love buying products at a bargain. Since you know this, you can use penetration pricing to attract them to your store. You can do so through offering seasonal pricing and coupons. Apart from increasing the number of people visiting your store, this strategy can help you get rid of old stock and create space for new inventory. The major drawback about this strategy is that your customers can get used to low prices and special offers that they lose interest when you don’t have them.
Studies have shown that people often feel a loss whenever they are spending their money. This is something that many retailers are aware of. By reducing the perceived pain of the consumers, retailers can command more sales. This is done through odd number pricing. It is easier for a product to be sold when the price ends with an odd number such as 5, 7 or 9. However, you may be stuck about which odd number to use for your pricing. Interestingly, 9 is the most effective. However, if you are selling luxury items, you should avoid using charm prices. This is because any reduction in prices could translate to a decrease in quality.
There is something that is referred to as the manufacturer suggested retail price (MSRP). This is the price that the producer will suggest you use when selling their products. Even though you can set your price, you risk losing some of the market to competitors if other retailers use the MSRP. You should use this pricing strategy if you can somehow manage to lower your costs and make more money than the competitors.
Product Bundle Pricing
This is whereby you create a perceived value for a certain purchase by selling multiple items using one price. The buyer will be more motivated to make the purchase because they believe that they are getting their money’s worth. There will come a time when the pricing for different items changes and you can longer sell them as a bundle. In such a case, it becomes hard to convince the customer to buy the items individually especially if the unit price tends to be a bit higher.
The above are some of the winning strategies that you can use to come up with the perfect price for your goods. While one pricing technique may work for a firm that you are familiar with, it may not suit your business. Understand your market and know their purchase behaviors. That way, you can be in a much better position to find the right price for your product.