Three (3) Tips To Set The Price Point For Your Product Or Service – One of the challenging aspects of starting a business is deciding on a price point for your product or service. Even if you have the best product in the world, if you don’t charge the right price, you’ll either lose money or lose customers. In either case, you’ll be out of business in no time.
Here are three-pointers to help you figure out how to find your niche in the market and charge the right amount for the best return.
1. As part of a value-based pricing strategy, conduct market research
The most straightforward place to begin is with some primary market research. This does not imply that you should hire a market research firm (though that is an option). It’s where you go to get a sense of the market and see what other businesses are up to. This is all part of value-based pricing, which determines the customer’s perceived value of your product or service. It’s also worth noting that the goal isn’t to copy or undercut competitors but rather to figure out what kind of ballpark you’ll be playing in. And determining whether you’re even capable of playing in the first place.
Read also: Standard Chartered Bank Ussd code*977#: How to Register, Transfer Money and Buy Airtime
If your proposed pricing differs significantly from everyone else’s, now is the time to figure out why. Is there something missing from your product/service that everyone else has? Or do you have something to offer that they don’t? Can you use this disparity to justify your price and carve out a more profitable niche for yourself? There is a wealth of data available today to help you make these decisions, whether your customer data or publicly available reports and studies. Understanding this and what your competitors are doing puts you ahead of the game from the start.
“Companies that don’t understand the value they create for customers are ‘flying blind’ on pricing,” Mark Bergen, a professor of marketing and pricing expert, said in a recent interview with Marketing Week.
What should your next course of action be?
Identifying your competitors – those who sell the same product or service as you– and noting what they charge their customers should be the first step in your research (taking note of any special deals or packaged prices they may be offering). This will give you a good idea of how much you should charge to stay competitive. However, choosing the right person (or team) to lead this research is critical. Because it’s their job to understand your place in the market, you’ll need someone in marketing to champion this aspect of your business. Also, you need to know how your target customers behave when it comes to pricing.
Read also: How To Sync Contacts From iPhone To Mac | Top Three (3) Methods
When we talk about ‘behavior,’ we’re talking about how customers make sense of prices and how we can use ideas from psychology and sociology to really understand how customers think and act.
The next step is to devise a strategy for contacting them.
2. Determine the bare minimum you’ll need to make a living
It’s pointless to set a price that will put you out of business. The goal of the game is to make money, so the prices you charge for your products or services should, at the very least, cover all of your expenses. Yes, if you’re lucky enough to have secured serious funding for your venture, you might be able to charge a little less at first, but your prices should always make financial sense. You should probably reconsider if they don’t cover enough to break even. Similarly, if the amount you need to charge to break even is too high for the market, you’ll need to change how you build your products or provide your service to make them financially viable.
What should your next course of action be?
It would be best if you calculated all of your expenses. These are some of them:
- Direct costs incurred due to the money spent on developing the product or service (including equipment, materials, packaging, storage, etc.)
- Indirect costs that keep your company afloat (including rent, wages, utilities, and any business rates)
Once you have this cost, you can determine where your minimum pricing falls in the market and how much margin you can legitimately add to generate profits and the return you deserve without alienating customers.
3. Put your pricing proposal to the test
Going straight to market and then adjusting later based on the reaction is a risky way to test your proposed price point. Many businesses do this – many of them successfully– but it does entail some initial risk. Plus, you’ll need a strategy for analyzing and pivoting your strategy if things don’t go as planned.
Read also: 5 Highest Currency in the World in 2021
A focus group is a far better way to test the waters first.
Focus groups are still big business, despite the vast wealth of digital data available. In 2017, over US$2.2 billion was spent globally. For a good reason: getting people together to talk about your product or service can sometimes help you uncover issues you wouldn’t have discovered otherwise until it was too late.
What should your next course of action be?
It’s not as simple as gathering a group of people, locking them in a room, and asking them questions about your pricing proposal. A successful focus group requires the right people, the right questions, and the right moderator to achieve your research goals. Even if you can do so, the real work begins after the event, when you are faced with massive amounts of data to analyze and put to use.
Numerous companies specialize in conducting brand focus groups. They’ll make sure you get the most up-to-date information so you can charge the most for your products or services and maximize your profits.