How to Set the Right Price for your Product or Service
Placing an appropriate price tag on a product or service is a sensitive task. To generate sufficient profit, you have to set the right price. At the same time, you cannot exaggerate it because this will keep buyers away from your store. The following set of recommendations will help you in optimizing the pricing strategy for your e-commerce business.
Right from manufacturing to the delivery of the product, everything is driven by money. There are various costs involved in a business, directly or indirectly associated with the product or service. The market price depends on the costs and expenses incurred. The profit is what you get after deducting costs from the market price.
The direct costs are associated with the manufacturing the product or conceptualizing a service. The overhead costs include fixed and variable costs like rent, salaries, administrative expenses, warehouse maintenance, advertising costs, payment gateway charges, and so on. After considering all these aspects, you can determine the right selling price.
You should be aware of the consumer behavior and industry trends to accomplish the task of market evaluation. Identify and segregate your customers on the basis of demographics, buying trends, and so on. Work on determining the amount of money they are willing to pay for your product or service. You can conduct surveys to gather complete information.
There is a rare chance that you don’t have competition in your niche, and therefore, you should be prepared to perform competition analysis. The procedure involves evaluating their business process, analyzing products or services, identifying their tie-ups, and understanding their pricing strategy. You have to offer a superior product or service, at a competitive price, to gain prominence in the market.
The value proposition is an art, and if you can master this, you can reap maximum benefits. Finalizing a price depends on the value of your offering. If you are dealing in premium products or expert services, you cannot set a low price. You have to maintain a suitable price to maintain its value proposition.
In addition to these, you can also work on user experience. For example, you can install a payment gateway for smooth and swift online payments. Customers are sensitive, and they are willing to pay more if you enhance their shopping experience.
Marketing and Promotions
Understand buyer’s psychology to mark the correct price of your product or service. During marketing stints, utilize tactics that will attract the buyers. For example, when a buyer sees a “SALE” tag, he or she develops an urge to check out the product. Similarly, odd numbers in the price tag can rake in more sales. Instead of a boring 500, simply mark the price as 499. Although there is no significant change in the price, it will definitely attract more onlookers.
Paid promotions can add up to the overhead costs. Whether you opt for social media promotions, search engine promotions, influencer marketing, or affiliate marketing; prepare an estimate and consider it at the time of pricing.
Some of the pricing methods that you can adopt include:
- Penetration pricing – This is suitable when you plan to acquire a market share in the initial stage. Initially, you can offer a low price and increase it later when you have established your presence.
- Pre-emptive pricing – You have numerous competitors in your niche. To disrupt their monopoly, you can offer similar products or services at lesser prices.
- Premium decoy pricing – When you plan to boost sales of a particular product, simply increase the price of other products so that customer opts for the product with the lowest price.
- Price Leadership – When you established your brand and customers vouch for your product or services, you can set up a convenient price, without worrying about market trends and competitors’ presence.
You can deploy any or all of the aforementioned suggestions to finalize the product or service price. Your ultimate aim should be to maximize revenue and minimize expenditure. You can also innovate and apply pricing strategies or experiment with different combinations of pricing methods to obtain best results.