What Drives The Decision Behind Your Prices?
When it comes to pricing your products, it’s not always as easy as finding a number that best represents what your product is worth to your customers. Rather, it often comes down to a range of factors that can all influence each other. So, while no-one can offer you a direct answer to the question of “what should you price your product,” there are a few questions you can ask to help you narrow that answer down.
The cost to make and ship your products
Most businesses are going to make sure that their products will exceed the overall cost of getting them to market. Otherwise, it can be nigh impossible to secure a profit. However, if you’re aiming to reduce your prices, then looking at maintaining a greater manufacturing efficiency or cutting the costs of transporting your products in one form or another can help you do that. When it comes to setting the absolute baseline price you should be offering, figure out the overall cost to make, ship, and sell the product, first.
Demand for the product
As ever, supply and demand remains one of the central forces that dictates the relationship between a seller and a buyer. If your sales are rocketing through the roof, then you may some room to raise the price. Price raises are expected, but you want to make sure that you don’t do it so drastically that too many customers are going to notice. Similarly, if your sales start to diminish for one reason or another, then you should look at the possibility of reducing your prices to bump up your sales as a response.
Look at your competitors
You are not selling your products in a vacuum to customers who have no other options. In the vast majority of cases, you are going to have competitors who are looking to win over the very same customers. Pricing is one of the ways that you can vie for those customers. Invest in some product matching research so you can see what your competitors are doing price-wise. You may not necessarily need to beat them but if you’re not able to compete with them price-wise, you may have trouble making sales.
The overall transactional value
In some cases, you may not be deciding your product prices based on the individual products, themselves. In some cases, the overall transactional value might exceed the cost of that single product alone, since it may come along with a need for other products or services. This is most often the case with a loss-leading pricing strategy. As the name implies, this means selling one product or service at a loss, but often as a means to win over a customer into a transaction that ends up getting you more profit, in return.
Not every business is going to weigh all of the factors mentioned above with the same level of priority. Make sure that you’re considering which of these factors affect your business most when deciding your pricing strategy.