Running a business, no matter the type of product you’re selling or the services you’re providing is never an easy job. There are so many factors to consider, so many steps to take and so many things to look out for. Therefore, it’s important to engage in business with diligence, and one aspect in particular that requires careful planning is the pricing of your products.
Your pricing goes a long way in dictating your cash flow, profits, as well as expenses you can afford to cover. This means that whatever prices you decide on will greatly affect the trajectory of your business. Any price tag way above or way below customer standard may be detrimental to business so how do you avoid this? Well, the answer is by carrying out a detailed price analysis.
The act of analyzing your product pricing involves the evaluation of product prices regarding the demands of the market. This ensures that opportunities are made available for changes and improvement. This is your opportunity to shape the market in a positive manner.
Pricing analysis is usually carried out when you’re coming up with new ideas or test running your products in the market. It’s advisable to carry out pricing analysis on an annual basis to stay updated with competitor prices and expectations of the customers.
Guidelines For The Most Effective Product Pricing Analysis
For the best results, it’s vital to go through the following steps and carry them out in the best fashion.
1. Establish The Best Pricing Strategy
A pricing strategy simply involves the adoption of a method or pricing model that works best for a product or service being rendered. It’s vital for concluding on product prices that maximize profits and value while taking into consideration the market demands of your target customers.
Pricing strategies have great effects on business factors ranging from revenues to market objectives as well as product attributes and presentation to the audience. At the same time, they’re influenced by external factors like consumer demand, competitor pricing, and overall market and economic trends.
Therefore, the pricing strategy employed is vital to determining how profitable your product pricing is as well as directly affecting your base and future prices in the course of your business. Some of the examples of pricing strategies that are employed when picking product include:
Many more strategies exist and are employed according to your market objectives.
2. Get Informed About The Market
Surveys, questionnaires are quite helpful in this regard because you’re able to get intel on how the market works, what competitors are out there, the customer expectations, and how your products are presented.
It’s not enough to try to match or beat the competition. The customer should be given higher priority and thus, their response to your pricing is of utmost importance. This implies that the pricing serves as the business stimulus your consumers respond to. How you price your products determines how they see it.
A low price suggests low quality and vice versa.
3. Work Out Costs And Profits
This involves taking into account all expenses made while setting up your business. The overall cost includes both the variable and fixed cost. Therefore, you have to be sure that the price you set covers both types of costs.
After working out the total costs, you subtract the costs from the intended product price to see how much profit or loss you’ll be running at if you were to go ahead with such prices.
If you only sell one product or service, it will need to cover all of these costs. If you sell multiple products, each of them has to contribute to your fixed costs.
4. Set A Pricing Objective
What do you aim to achieve with your pricing analysis? And what pricing strategies help you achieve these objectives? These are questions you need to ask yourself when picking out product prices.
If you’re launching a new product, it’s best to start with a relatively low price to help you build up your market presence. Or you might go the other way and set a high price that makes the customers adopt early, getting them prepared to get hold of your exclusive products as well as getting used to the pricing.
It’s important to maintain consistency of pricing across the range. This makes it more likely that customers for one product will buy others as well.
5. Know Legal Or Ethical Setbacks
There’s a thin line between trying to beat the competition to the best price and falling into legal trouble. Its is important to have a firm understanding of price-fixing and predatory pricing while doing your pricing analysis to steer clear of these practices that have negative consequences.
It’s no news that coming up with the best product prices can be a real headache sometimes, especially if you’re new to the market. This headache comes from market evaluation where you find out about customer expectations and behavior, taking into consideration your overall costs and market objectives.
All this while checking out the prices of your competitors who sell the same or alternate products. Although this is important, it shouldn’t be at the center of your pricing strategy.
The best pricing strategy is the strategy that greatly maximizes profits and value. Numerous pricing strategies exist that can help you understand what it takes to set the right prices for your customers as well as business goals.
Product pricing focuses on every aspect of business from finances to your product’s positioning in the market with considerations like if it’s timeless, bespoke, or is a short-lived trending product. It also considers how you make a profit selling online.
It’s a key strategic decision you need to make for your business, and it can be just as much an art as it is a science. But the good news is it’s not a decision you only get to make once, just because it’s the price you use to launch doesn’t mean it’s the price you’ll use forever.