Developing a pricing strategy
What to consider when developing your pricing strategy as well as understanding your competition, customers and tactics.
When developing an overall pricing strategy, you will need to:
- understand what your goods or services cost you to provide, and what they are worth to your customers
- work out how you will be covering fixed and variable costs, and what you will need to charge to break even if you take both into account
- decide whether to use cost-plus versus value-based pricing
There are also other considerations when you are deciding what to charge for your products.
Competition
It's important to find out what your competitors offer and what they charge. Research your competitors' price lists or ask them for a quote.
It's probably unwise to set your prices too much higher or lower than your competitors without a good reason. If you price too low, you will just be throwing away profit. If you price too high, you will lose customers unless you can offer them added value. Always consider how your prices compare to the overall market, and think about what you would look for as a customer.
Customers
How customers see your product or service is also important. In many markets, a high price means that customers will see your product as being of premium value. This might encourage customers to buy from you but it might also stop price-conscious customers from doing so. Researching your market and gathering feedback from customers may help you understand how your products are perceived.
Tactics
Finally, you should consider different pricing tactics and how they balance out across your entire range of products and services. For example, a loss-leader (which makes a small profit or even none) can be offset by other, more profitable products.