Business Pricing Guide
The answer to the question of what is the best price for your product or service is always an urgent task for any business. How not to cheapen by announcing the cost of your services to the client? What if the client considers this price expensive and does not buy anything? What is the maximum markup for a specific product? All these questions are solved by the pricing system that you will use. In this article we will reveal the TOP-3 methods for choosing the best price.
Factors that influence the way you are pricing
Prices surround us at every step of the modern world. You noticed? They also say: "Everything has a price." And indeed it is. Prices are everywhere, only some are lower - others are higher, some are rising rapidly, others have not grown for years. Why is this happening?
Factors that affect the price can be divided into internal and external:
- Internal factors are formed by the conditions of the organization itself. What equipment is used, how efficient is the staff, what are the suppliers of the company. All business processes of the company ultimately form the level of costs, on which the company imposes a markup from above.
- External factors are formed under the influence of competitors' decisions, consumer choices, government policy and the economic situation. Competitors lower their prices, you will have to do the same. Consumers love a certain brand and are willing to pay for it, you need to offer conditions that will satisfy the buyer more. The state imposes duties on the import of a specific product, your prices will rise by the amount of duties paid.
There are many factors and they all affect. This is clear. But how can you set the price so that it is flexible and quickly adapts to the needs of the company? The correct choice of pricing method that meets the goals of the company will help here.
There are a lot of pricing methods. During the development of the material, at least 20 were found. However, not all traditional methods are relevant at the current moment of economic development. Nowadays, more and more often you have to mix different pricing methods in order to set a competitive price.
So, for a more understandable structure of methods, we will divide them into three large groups:
- When the price is determined only on the basis of costs (cost methods).
- When a company sets a price based on market conditions (market methods).
- When, when setting a price, the company is guided by some technical and economic parameter of production (parametric methods).
Costly pricing methods
If you have a completely new product for the market, and therefore have nothing to compare it with, or if the level of demand for your product is not well understood, then the cost group of methods is ideal for you. Also, the costly pricing method will be the best choice for goods that are limited by the purchasing power of the population, for example, essential products, as well as for goods made with individual characteristics in their production.
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Stage Defining Pricing Strategy
The pricing strategy primarily depends on the market goals that your company sets for itself. It could be:
Maximizing market share (pricing is used to maximize sales);
Profit maximization (emphasis on product value);
Break-even existence in a highly competitive environment.
Depending on these goals, your company can choose one of the following pricing strategies:
Market launch. A prerequisite for the implementation of this strategy is the low cost of goods, which makes it possible to set a low price, which, in turn, makes it possible to win a large market share.
"Skimming". The condition for applying this strategy is the high quality of the product or its exclusivity, which makes it possible to request the maximum price and get the maximum profit.
“Specialization in a specific segment” is typical for small firms (which cannot openly compete with large enterprises). The goal of the strategy is to achieve a break-even existence. To do this, firms choose a certain area of the market and set a price at an average or above average level.
How to calculate the fair price of a product
Raise the price tag in anticipation of super-profit and sell it at a loss - two extremes of pricing. But how do you set a fair price? Let's talk about this in today's article - we will give you a step-by-step algorithm for calculating the price.
How pricing is usually done
All companies face pricing. Some do it by eye, the second write off the price tag from competitors, and still others are guided by the cost price. Let's figure out why it is dangerous.
Set the price “as you feel”. Such a price may not fully take into account the costs of production and sale of the product, thus, the company will work in the negative. The businessman says: "The red price for a glass of coffee is 200 rubles!" And then it turns out that with his rent, he needs to sell 300 cups a day just to get to zero.
Tie price to cost. The company can get cheaper and less profit. For example, the production of a fashion accessory costs the company 5 rubles, and you can sell it for 500 rubles precisely because it is in demand.
This can work the other way too. A high cost price will also entail a high price, which can make the product unattractive to the customer.
Focus on a competitor. The costs of producing a product may differ from company to company. Apple buys processors at the factory at an exclusive wholesale price, and for the modest Russian Yota, these same processors will cost one and a half times cheaper.
In addition, when setting the price of a product, there is always a goal, and the goals of competitors may differ. "Shokoladnitsa" may not make money on coffee at all, but Starbucks needs it.
The price is influenced by both internal factors - costs and goals of the company, and external - demand or competition. There are several things to consider when setting a price. Here's a guide to help you avoid confusion and set a fair price.
Step Define Purpose
The company's pricing policy can be determined by a variety of goals: capturing market share, maximizing profits, expanding the audience, stabilizing the assortment or market, driving out competitors, supporting the distributor. These and other goals can reduce or increase the value of goods.
Issues covered in the material:
- What is pricing and what are its goals
- What are the main pricing methods
- What additional pricing methods are most successful
- What are psychologically effective pricing methods
Every business owner should have an idea of what factors need to be considered when forming the cost of goods sold. Competent use of pricing methods allows an organization to maintain its competitiveness, increase profits, customer turnover and achieve other goals aimed at developing an existing business. Today in this article we will talk about how to ensure competent pricing, we will tell you about 20 effective methods that will allow an organization to stay afloat in any situation.
What is pricing and what are its goals
Pricing is a mechanism for setting the cost of a product taking into account a combination of certain factors (cost price, competitors' pricing policy, supply and demand balance, etc.).
The goal of pricing is to provide a reasonable and timely price response that will allow you to sell as many goods as possible with minimal loss of margin.
It is worth noting that the formation of the price of a product is largely determined by the tasks that the organization sets itself. These goals include:
- the survival of the organization (involves setting a price that will allow the company to maintain its competitiveness);
- maximizing profits;
- increasing the number of distribution channels ;
- belonging of a product to a certain category (for example, if a product is positioned as a luxury product, its price may be unreasonably high);
- sales promotion;
- expansion of the share On the market.
Of course, this list is not exhaustive, and each company pursues its own goals at a certain stage of development.
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