How To Determine Right Pricing Strategy For Your Business ?

Price determination and different markets

Factors affecting the price

  • Cost of the product — The cost of production is a critical factor, and no one can set a price below it. Firms have to set a price equivalent to the cost of the product in order to reach the break-even point.
  • Demand of the product — depending upon the demand of your product, you will have to adjust the prices so that you can cater to the right amount of audience. If there’s high demand, then an increase in the price will ensure that the demand comes down to the level of the supply and vice versa.
  • Price of the competing firms — You have to consider the prices set by your competitors in order to be in the market. If you set a higher price than them, you might lose your customers, and if you set a lower price, then you lose your profits.
  • Purchasing power of the buyers — It is very important to keep in mind the purchasing power of your target audience. You can’t sell at a higher price if your audience cannot afford that.
  • Objective — The price does not only resemble the exchange value. It is much more than that. It also depicts your brand value; hence the price should showcase what your brand stands for.
  • Government regulations — There are certain rules set by the government regarding the prices so that everyone has access to fulfill their needs. This ensures that prices set by the firms are not fictitious.
  • Marketing method used — Firms spend a lot on promoting their products, and it indirectly affects the prices of the products. If the firm uses a middle man, then it adds the cost of commission to the product.

Exceptional Cases

Various Pricing Strategies

  • Cost-plus pricing — This is the simplest form of pricing strategy used by businesses where they simply add a percentage-based mark up to the cost.
  • Value pricing — This strategy focuses on the value that the product or services offered to the customers. Based on how your customer benefits from the offerings and their willingness to pay on that basis.
  • Penetration pricing — Here, companies tend to initially charge low prices to enter the market and then gradually increase the price in the long run.
  • Price skimming — This is usually for the influencers and trendsetters who buy the product as soon as it comes to the market. The prices are initially high and tend to lower down as time passes.
  • Bundle pricing — Selling two or more products to the customers at a lower price compared to selling them separately. This is to attract the customer to buy more than they actually planned.
  • Premium pricing — When the main target audience is affluent class shoppers, the price is usually set to be higher. It’s a way to stand out from your competitors where you provide premium offerings.
  • Competitive pricing — Companies also set their prices according to what their competitors have set to remain competitive in the market with many players.
  • Psychological pricing — It’s a unique technique to set prices where you focus on how customers end up paying higher while not realizing the same. For instance, a price of $99.99 is almost the same as $100; however, $99.99 is a two-digit price that customers perceive to be less and affordable compared to $100.

How should companies approach pricing?

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