How should I price my product?
The goal of a business is to provide value that customers are willing to pay for. Setting a price is ultimately about finding the amount that people will pay for a product. Arriving at that price requires knowing customers well and understanding what matters most to them.
Many businesses make mistakes in the area of pricing, setting their prices too high or too low, or choosing the wrong pricing structure altogether. The result is that they do not find enough customers who will buy the product, and their business fails to take off. Setting a price is not an easy decision to make, and should not be treated in a casual manner.
Oftentimes, companies need to test different prices to see what will get the best response. Pricing is also about market perception and making sure that the value offered lines up with the asking price.
When setting prices for their products, businesses should consider the following:
THE TYPE OF PRODUCT SOLD
They know whether they are selling software, hardware, or a service, some kind of goods or intellectual property. In our case, it is the software solutions we’re offering your business. But is the product a comprehensive solution or a vertical product that simply performs one function? Knowing this will help to set a price that is in line with what is offered.
THE MARKET LANDSCAPE FOR THE PRODUCT
Businesses must define who their customers are and what they want, the competitors they face as well as their pricing structure. They should also describe the opportunity in terms of how much of a market share they hope to take with their product.
THE POSITIONING OF THE PRODUCT
They should also consider whether they are a value brand appealing to practicality or a luxury brand appealing to the rich. How does the product compare to other products they sell (or may sell in the future?) A low price can be a point of differentiation for some products and companies; however, prices must be higher than costs.
THE UNIQUE VALUE PROPOSITION OF YOUR PRODUCT
What sets the product apart from the competition? Customers should perceive that the product is different from other available products. Differentiating factors can include additional features or an ultra-responsive support team that helps the product stand out as unique.
When arriving at a price, businesses must factor in the cost as well as the desired perception of the product in the marketplace. They must also cover their fixed and variable costs, which include costs for producing, maintaining, and promoting the product.
DIFFERENT PRICING OPTIONS THAT COMPANIES CAN CONSIDER:
1.] Cost-plus pricing
The selling price is determined by adding a percentage markup to the unit cost of a product.
Targeted return pricing
The price is calculated based on the investment amount that must be recouped, plus the expected profit for an investor.
2.] Value-based pricing
With this pricing model, a business focuses on what the customer perceives the value of the product or service to be. Customers may be willing to pay more for a product they perceive to have higher value.
THE PSYCHOLOGY OF PRICING
Customer perception is a major consideration when determining pricing.
But remember, the product with the lowest price does not always win out. Consumers are value-conscious, but they will not always opt for the lower-priced option if they feel there is more risk involved.
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