As a former pricing manager, and after many years working with sales and marketing, I understand the importance of pricing correctly.
It seems easy – take the cost of delivering your product or service, add a bit and charge that to your customer… Right? But how much is the “bit extra”. And what if that results in demand you can not keep up with or – worse – no demand at all?
Pricing is a balancing act and before setting a price, it is important to understand your goal and work backwards from that. You will need to consider the cost of producing and delivering your product, the cost of doing business with retailers (if applicable) and how much you can supply.
You may discover one of your products hasn’t sold much and your warehousing costs for that product are escalating. You need to get it gone to minimise your losses. You will then be looking at clearance pricing – a price enticing enough to encourage trial or multiple purchases.
Pricing to increase the share of your product in the marketplace is another method. The reasons for this method are varied but could be to ensure your product is relisted by your retailer or to improve your economies of scale. In this case, you are likely to be offering your product at a discount meaning you will have a lower profit margin for that time.
You may just be starting out, and you would like people to try your product or service. Or you may want to increase the number of outlets that stock your product. In that case, you should offer discounts to retailers or offer an introductory price to consumers. For services, this may be a complementary half hour consultation or an entry level product – such a podcast or template – which will give potential clients a feel for what you offer.
If your aim is to offer a superior service or a niche product, you will want to price above competitors. You need to ensure that your service or product lives up to the price, but the benefits are lower warehousing and shipping costs due to the lower volumes demanded.
If your product or service is well established in the market, with steady sales or new client referrals, chances are you will be pricing to ensure sustainable profit margins. It is not as vital to price in line with competitors, as most of your customers are repeat purchasers or recommended clients so will pay what it costs, within reason.
Another method of pricing is to offer bundled products or promotions similar to the free gift packs you receive from Department Store beauty counters. Getting the pricing right for this is extremely difficult so is best used in conjunction with one of the pricing methods mentioned above. For example, offering a product which needs to be cleared as a bonus gift when another related product is purchased.
Those are just some of the goals to think about when pricing your products or services. If you just add a bit to the cost of providing it, you risk your offerings being non-competitive or untested and they will ultimately fail.
If you would like to know more about how to price your product, watch my shop for a pricing template, or contact me about my half day workshops and one to one consults which will take you through this (and more) in detail.