7 Quick Steps Of Product Pricing (The Right Way)
This is a re-post of the original blog post of PayUmoney Blog.
Product pricing is an important factor that determines whether your product/service succeeds or fades away in the market. Pricing your products correctly is so critical that it can change your business drastically by skyrocketing your sales and establishing your business. Are you considering to price your product and are confused between too low or too high? Find the difference between the two to know why balance is the key to everything:
It is true that people associate a quality product with the high price, but when you price your product too high people might not buy it. While pricing the same product too low might result in a loss for you. There is no one size fits all formula for pricing! So, before we start decoding product pricing, you should understand what product pricing actually means.
What Is Product Pricing?
In simple terms, product pricing is a technique used to choose the price at which you sell your products and services. While choosing the price, you should also consider the price of the raw material, the manufacturing cost, the marketplace cost, your competition, the market condition, brand value, and the quality of your product. You need to be brave hearted to stand by your intuition, experience, and market analysis while attaching a perfect price tag to your product. We can help you do so very effortlessly, just keep calm and use these:
7 Pro-Tips To Price Your Product Correctly
1. Be Goal Ready
Consciously set your business goals before you even think of the number of zeros you should add for your product. The very first thing that you should keep in your mind before pricing your product is your goal, which is to make money. The term making money means that you will be able to generate enough revenue so you not only cover your costs but also generate profit. This, in turn, helps you expand your business as well. It is true that product pricing drives your sales, but you should also possess the ability to sell i.e. hiring the right person and adopting the correct strategy to sell. Unless you have your business goal in place you won’t be able to climb the success ladder up.
2. Include All Costs Efficiently
When you’re in a phase called “product pricing” you should consider 2 factors without blinking:
a. Are all the costs covered — making charges, transportation, shipping, etc.?
b. Is it just breaking-even or adding to your profits as well?
Businesses usually, run behind the “all sold out” tag impatiently thus compromising their pricing. For example, Leena sells jewelry for Rs. 100 when the making charges are Rs. 110, which means it is a straight loss for her. Leena should have sold the jewelry for Rs. 111 and more as the actual agenda is to gain profits and not face losses. Live up to your terms of pricing, quality, packaging, etc. Initially, you might run into a loss, but the lantern of credibility, quality and worthiness will eventually light up the path of profits!
Pro-Tip: Fill in the cost you need to cover in an Excel sheet so you actually know the gross revenue you should generate and that you don’t miss out on anything.
Here is a hypothetical example of product pricing of a T-Shirt:
3. Let Your Customers Decide
Before you fix your product price, it is mandatory that you know what kind of customers you are you are eyeing to selling your products. According to business owners, knowing more about your customer helps you provide what your customers’ value and price your products higher as well. You can start by hiring a market research firm to get a detailed survey of your market and your potential customers (segmented according to their demographics, buying power, price sensitivity, etc). But do note that this will cost you tons. If you prefer other cost-effective methods to segment your customers, you can go for the following methods, like:
Emailing your existing or potential customer base, to know what they feel about your product when compared with your competitors’. Another interesting method is to ask your customers these 2 questions which help you understand what they feel about the product pricing:
a. What is the price at which the product seems expensive?
b. What is the price at which the product seems like a good catch?
Based on the answers, you can center the price of your product.
4. Do You Know What Your Competitors Are Doing?
Observe your competitors as your customers are more likely to do that! While comparing your product with your competitors, you should first analyze:
a. Whether your product can be compared with your competitors
b. How to use your competitors’ price as your base price
c. Check whether you offer any additional value in your product, in that case, you can price your product higher
d. Also, while pricing consider the demographics of your customers
You can also go a step further and compare the pricing of your competitors’ product and yours, head to head.
Now, that you know what are the factors to consider for product pricing, here are some must know types of pricing to follow.
5. Apply Psychological Pricing As Well
Did you know that psychological pricing increases sales by up to 28%?
Psychology plays a great role in determining your product pricing. For example, if you see a product priced at Rs. 9 and then you find same the product by a different brand at Rs.11, which product are you more inclined to buy? We are sure before you even ask yourself “which one?” your mind has already decided to purchase the product priced at Rs. 9. This theory is easily explained by Gerry Claps in his article
Use round dollar numbers and slip in the number 9 if possible.
Why? Evidence has recently built a case for people preferring to spend more on rounded dollar prices, a counter-intuitive take on the “99c” store. There’s also buzz around the magic of the number 9.
So, whatever pricing you select, you can always apply psychological pricing to it as well.
6. Use Different Product Pricing Methods
There are millions of pricing experts across the globe who propose various kinds of product pricing strategies. When we curated through all these extremely intelligent strategies, we found 2 of them really actionable and instantly implementable:
A) Tiered Pricing
It is a type of pricing used to segment or tier the prices of products based on your target markets. It is used by businesses in some way or the other and is all around us. Tiered pricing is mainly used by service providers which could be online software providers, travel agencies in the form of packages and so on. By opting for this product pricing method, you can successfully meet customer needs across different segments, thus capturing a larger market share.
B) Bundled Pricing
This pricing is used by businesses to sell a set of products or services for a lower price than what they would charge if bought all of them separately.
One classic example for anyone to relate to bundled pricing is ordering food in leading fast food joints. You can either choose to buy your fries, coke, and burger separately for a higher or buy all of it in a combo for a cheaper price. Also, when you create bundled pricing for your product, keep how the bundle will benefit your customers as your priority. You can also, bundle your product pricing in such a way that you sell it at a low price and then provide add-ons to the product so customers will be encouraged to buy further.
7. Keep Your Price Flexible
The way products are priced differs from one business to another, so you need not stick to someone’s pricing technique as it might be different from yours. Being flexible is the best strategy to follow especially to gain customers. Before you decide whether to raise or lower your product pricing, you need to evaluate what’s working and what is not. Experiment with the following flow:
a. Test new prices, offers, and combinations so you can sell better.
b. Measure your product’s performance on the basis of volume, quantity sold and profit earned.
c. On the basis of point (b) observe your buyer sensitivity towards your pricing and analyze whether it is over or under priced.
Do remember that product pricing is not same for all, it depends on your customer type and products or services you are selling. Follow the above 7 product pricing pro-tips to instantly see your sales graph shooting from 0 to 1000 and above quickly.
With all your marketing efforts for your business in place, it’s a good idea to have an all-in-one payment solution in place as well. Now to enjoy the best payment gateway experience and grow your business effortlessly!
