There is often a misconception that price is calculated by a business simply taking the cost of the product or service they are selling and adding a suitable margin.
In truth, the owner of the business does not determine prices at all; the customer of a business, and how much they are willing to pay determines prices.
To discover the best price for your product or service you must consider the following:
EXPLORE THE COMPETITION
A good place to start is to go out into the market place and see what your competitors are charging. Even if you are have a revolutionary product that no one else is selling, there is likely to be something similar out there that will give you a solid benchmark for what the market can bare.
EXPERIMENT
Data is your friend, and if you can experiment with prices and monitor the effect on sales, you will soon be able to optimize the price point for your goods or services. You may be surprised in the results. Increasing prices for example, does not always lead to a reduction in sales volume. Where is does lead to a drop in volume, this may also not actually be a bad thing if you still see increased profitability from achieving a higher margin on each item sold. In lowering prices, you may also assume that your volume should automatically increase. Be aware of this pitfall, as lowering prices can also give the image that you’re product or service is “cheap” for the wrong reason.
BUNDLING
Try creating bundles of your packages and services to create a higher value. For example if you’re selling a screwdriver, you may wish to sell a bundle that also includes screws at a reduced cost, or if you’re selling software, you may wish to create different bundles of varying support levels.
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ARTICULATE VALUE
Businesses DO have influence over their customer’s willingness to pay, if they can clearly articulate a higher value for their good or service. If you’re selling a wind turbine for example, the whole premise is that it should save the customer money in the long run, however the benchmark price should still be how much it should cost to produce comparable amounts of electricity in another way.
THE POWER OF BRANDING
A fantastic example is the Apple iPhone. I don’t dispute that Apple provides great phones, I happen to own one myself; but look at all the competitors out there who are also providing ground breaking technology yet they can only dream of matching the price points of Apple products. Therefore it is important to focus on the overall brand of your company and product. If you want to obtain higher price points, you need to reflect that image and desire to your customers.
BEWARE
If your product or service isn’t selling at any price, you need to sit down with a number of customers to find out why what you have to offer is not what they want to buy. In this case, you don’t have a pricing problem; you have a product or service design problem.
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