How to Prize Your Product: 12 Steps

2024 Author: Samantha Chapman | [email protected]. Last modified: 2023-12-17 09:13

Using an effective pricing strategy can make the difference between a successful business and a failing one. You have already done the necessary work to offer a unique product and advertise it appropriately: all you have to do now is to give it an appropriate price. Learn how to calculate overheads, raise or lower prices correctly, and use promotional rates to your advantage - your budget will be in surplus in no time.

Steps

Part 1 of 3: Calculate Overheads

Step 1. Calculate the running costs of the company

To determine prices, you must first establish the overall costs generated by running your business. In fact, it is necessary to determine a price that allows you to keep the budget in surplus. The first thing to do is therefore to calculate the costs generated by the activity, which in turn can be divided into direct and indirect costs. Here's what to add up:

• THE direct costs are objectively attributable to the acquisition, processing and sale of a product or service:

  • Labor costs.
  • Marketing costs.
  • Manufacturing costs (raw materials, equipment, etc.).

• THE indirect costs instead they are associated with the administration of the company on a daily basis. Sometimes the hidden costs, or even the real ones, generated by running a company are considered:

  • Operating costs (including infrastructure rental, utilities, and so on).
  • Debt service costs.
  • Return on invested capital.
  • Cleaning and stationery material.
  • Your salary.

  

  Step 2. Establish a strategic financial goal

  The only reason for starting a business venture is to make a profit, specifically to earn enough money to keep the business running. For this reason it is necessary to calculate a strategic financial goal to be overcome in order to define the business as profitable. This figure must be added to the costs to understand how much revenue the sales should generate.

  • Once you have determined how much revenue you need to have a profitable business, you can begin to get a concrete idea of the right price for your product.
  • It can take several years of experience to gain a good grasp of your market.

  

  Step 3. Predict customer wishes

  Determining how many products you can confidently sell in a given time frame is critical. This figure should be calculated considering customer consumption trends. Identify your customer base and their shopping habits. How much do they want a particular product? Is there any question? When making these calculations, you need to be as specific as possible. Consider your current assets, how much can you sell? How many units do you need to sell to maintain the tangibility and success of your current business model? What should be changed?

  • Divide the strategic financial milestone figure by the number of units you think you can sell with certainty - this will help you calculate a guideline for unit prices. This won't necessarily be the price, but it's a good place to start experimenting and seeing how customers respond.
  • Offer reliable customer service, not just a facade.

  

  Step 4. Study the competition

  If you sell custom iPhone cases, are there other companies offering a similar product? Where is it? How much do their products cost? How are they managed? You have to learn everything you can about the competition, so that you can set yourself apart from its model to acquire a slice of the market of your own.

  • Consider the following example. Manage one of the two yogurt shops in your city. You can't understand why your organic coconut and rosemary kefir sold for seven euros a cup (cheap, considering the ingredients) isn't so successful. Instead, your competitor on the other side of town sells cups of chocolate yogurt like bread. What to do? You need to know your competitors' pricing and customer base, so you can stay competitive and be relevant. Do you have the same clientele? Is there another slice of the market you could focus on to sell your products and have a more profitable business? Is there a slice of the market that would be willing to pay the prices you set? These are all important questions to ask yourself when setting prices, only in this way can you manage business well.
  • Find out about the competition using a search engine. Social networks and the internet have changed the way customers search for businesses.

  Part 2 of 3: Raising and Lowering Prices

  

  Step 1. Try to understand the consequences of too high or too low prices

  Pricing inefficiently will have a substantial and quantifiable effect on revenue. You must learn to recognize the characteristics and problems of too low or too high a selling price. If you've been thinking about going either way, it may be that you need to make a change.

  • There under equipment it is often done by companies that want high volumes of sales. They expect the consumer to think they are making a good deal, especially in a troubled economy. However, this can give the impression that the product is of poor quality and that it is not worth buying.
  • Excessive pricing it can turn customers away. Pricing too high can be tempting, especially when trying to recoup your initial investment. Starting a business venture involves a substantial investment, so you probably want to start covering the costs right away. But consider the customer's point of view. Setting a high price that will allow you to make a good profit margin will only work if people are willing to pay.

  

  Step 2. Keep an eye on selling prices and your budget

  Monitor your profits and prices at least once a month. Analyze the costs and profits of each product to understand how it affects overall profitability month after month. This can give you a clear picture of the cash flow.

  • Talk to customers and listen to various opinions. Take them to heart. If you like a product but complain about the price, you should think about a change.
  • Make a budget. Try to focus on a long-term strategy that will allow you to have a profitable business. It is not certain that you will have to make radical changes right away, but you have to progress little by little towards a general goal of profitability.

  

  Step 3. Raise prices slowly and progressively

  If you've sold an iPhone case for $ 5 so far and you raise it to $ 12 overnight, you're sure to lose customers, even if the change is right for your business and a smart move. Gradually increase the price, invest time to promote the benefits and advantages of the product rather than apologizing for the increase. Offer it as a benefit, not a drawback.

  • Sudden hikes will feel like desperate moves made by a struggling firm, which may or may not be true. You don't have to look like you're raising your prices because you need more revenue. Instead, you have to give the idea of doing it because the product deserves it.
  • Look at the volume of post-change sales. If the move was too sudden, the change will be negative, so you will need to do more to promote the new version of the product for sales purposes and justify the price.

  

  Step 4. Use promotions to lower prices and attract consumers

  In general, you should avoid lowering prices: this is a tactic that should only be implemented if the competition does it or the company does not generate enough revenue to be profitable. Lowering prices can in fact suggest another kind of desperation: people avoid your point of sale. Offering limited-time promotions or expiration-dated coupons can help you attract customers to a particular product or service.

  • Instead of suddenly lowering the price, use discount tactics and promotions. You can also try the 3x2 offers or offers that still allow you to buy more units at a lower price. For example, November is diabetes prevention month. At this time of year, raise the price of sugary drinks, so you will recoup the cost of lowering the price of healthy foods. Make sure you inform customers - this will guide them when it comes to shopping and also make them feel better when they pay more for a product. Plus, they'll know the changes are temporary.
  • Avoid looking desperate. For example, an empty restaurant can be associated with poor food. In particular, if it suddenly becomes very cheap, people may think that the product is of inferior quality.

  Part 3 of 3: Using Promotional Pricing Strategies

  

  Step 1. Use creative promotions to attract customers

  Setting promotional rates is a popular tactic for advertising a product. The consumer will feel that your shop is the right place to do good business, even if they won't always be able to pay less. Try using pricing strategies to advertise yourself.

  • Use the 2x1 promotion to attract people and make sure they are impressed with the deals they can make. If you can get her to come back, even when you don't offer promotions, you will have acquired a loyal clientele.
  • Vendors often offer a bundle of old or unwanted related products at a special price so they no longer have them in store or in stock. In this way, they get rid of goods that they could hardly sell. Older DVDs, CDs, and video games are often sold using this method.
  • Volume discounts (for example, a 20% discount on purchases over € 150) and a partial refund after the initial purchase can also encourage customers to buy more.

  

  Step 2. Leverage the consumer's emotions and rationality

  Promotional pricing strategies can't be just information campaigns, they need to appeal to your target market. To do this, he tries to leverage his emotions or his pragmatism. A classic sales strategy is to set prices that end with 99 cents, without rounding them. At first glance, the difference seems a lot and you think you are saving (but basically it is nothing). Pricing judiciously will help you keep your sales high without having to considerably change your strategy.

  • Try to create a premium package to implement the up-sell technique: offer moderately improved versions of the same product, but more sophisticated (for example, of a higher range or in any case characterized by added values).
  • You can also create a line of products or services with various price levels available to the customer. Car washes often use this strategy: a classic wash costs 2 euros, washing and polishing 4 euros, the whole package 6 euros.

  

  Step 3. Try up-selling promotions for the purpose of selling more products or services

  By offering optional products or services, businesses try to persuade customers to spend more once they start shopping. Optional extras increase the overall price of the product or service. For example, airlines charge for ancillary options, such as reserving a seat by the window or a row of adjacent seats.

  • Historically, promotions have proven more effective than advertising.
  • A disadvantage of promotions? There is a tendency to see a drop in sales of the same product or service immediately after the end of the promotion.

  

  Step 4. Don't give the impression that you are inflating prices

  Those who unreasonably raise prices do so because they have a substantial competitive advantage or monopolize the market. This advantage is not sustainable. The high price tends to attract new competitors to the market, so it will inevitably lower due to the increase in supply.

  • The captive-product pricing strategy is used when a particular asset has ancillary products. When the consumer buys complementary products, the company charges a higher price. For example, a company sells razors for a low price, but recovers its margin (and more) by selling razor blades specifically for this type of razor.
  • In some places and under certain circumstances, inflating prices is illegal.

  Advice

  • When establishing the pricing model, do it in a safe and specific manner.
  • You need to understand your market segment.
  • Pricing based on market demand, not what you think your product is worth.