You’ve created a product and are eager to start offering it to your target consumer. However, you’ve got a lot of work ahead of you. One of the main challenges you’re going to face is how to price the product you’re bringing to market.
There are five common pricing strategies you should know about. However, depending on the product you’re offering, there are two additional concepts you should understand.
Sometimes, the government or a group of businesses might agree to exercise some form of control over pricing in select industries or for certain products and services. There are two types:
This is the lowest price that can be charged for a product or service. In order to be effective, a price floor must be lower than the market price, or the price when economic forces are in balance.
The most common price floors are minimum wage laws.
As the name implies, this is the opposite of a price floor and instead sets the maximum price that can be charged for a product or service. These are often imposed in order to protect consumers from things like high inflation, investment bubbles, or monopoly ownership.
A common price ceiling is rent control.
How To Price The Product In 5 Different Ways
The easiest and most popular way to price. This is simply calculating your costs and adding a mark-up in order to make a profit. However, just because it’s easy and popular, doesn’t mean it’s the best choice. This form of pricing often ignores the customer and isn’t reactive to things like supply and demand.
Setting your price based on what other similar products are being sold for. While it should always be part of your plan to research the competition, be careful not to ignore decisions that could help your business because you are too focused on what the competition is doing.
There are also two important subcategories of competitive pricing:
Co-operative: Setting your price to match competition. They raise or lower their prices by a few dollars, so you do the same.
Aggressive: Essentially, pricing to punish. If your competition lowers its price, you lower it even further. If they raise their price, you stay the same.
Charging a higher price initially, then lowering it over time. This can be an effective strategy when introducing new, innovative products. However, there are risks involved with this type of pricing such as copycat products entering the market at a lower price and the need to prove the value of your high-priced product.
The opposite of price skimming, this is pricing your product low to enter the market and then raising the price later. This can make sense for certain products, but could lead to customers constantly expecting low prices or a price war with competitors.
Pricing based on the customer’s perceived value of the product. Value-based pricing is the most involved strategy, but you can find a handy-guide along with some tips, here.
As you can see, there are more than a few strategies on how to price your product. In addition, don’t be afraid to combine different strategies to get the perfect price.
If you have any questions, don’t know where to start, or are unsure where pricing fits into your overall marketing strategy, Siva is here to help!
We’re a full-service marketing agency proving everything you need to get your business, business.