For a business to be successful, it must have a working product pricing system. There are several factors that should be considered when setting the price for your products. The methods applied when setting your pricing include; cost-based pricing, completion-based pricing and customer based pricing.
Competition should be considered when determining the price of a product. As competition increases in the industry, the product pricing strategy becomes more flexible. When your competitors sell the same product and at a lower price might impact negatively for your business (Jeff & Mary).
Perceived value of the product is a factor that must be considered before deciding on the price for your product. This is because of the fact that many customers tend to associate low price with low quality (Howard & James, 2004). The ability to balance between the perceived value and the price of the product is an idea in coming up with the best price for your product.
Development costs must be considered when deciding on the price of a product. These costs get incurred when a new product introduced in the market. The costs are from research and experimentation when developing the product (Jeff & Mary). The price of the product should not be below its actual cost price.
The economic factors such as labor cost, currency exchange rate, taxation rate, inflation rate, and monetary policies have an influence on the product pricing strategy. The level of market demand also has an effect on the product pricing strategy (Bathgate, 2004). When demand exceeds supply, the prices get inflated due to reduction of available products.
Demographics have an influence on the pricing of the product. Factors such as age bracket, business location, and education status influence the product pricing strategy (Jeff & Mary). The product pricing strategy based on the targeted customers. Class of targeted customers also influences the product pricing strategy. The product targeting the rich will be high priced than products targeting the middle class and the low income earners.
Cost-based pricing is coming up with product cost subtotal. All cost for running the business must be included. The costs include transportation, wages, raw materials, rent, advertising and any other costs (MasterPack, 2010). The product subtotals help to come up with the right price for the product.
Competition-based pricing enable your business to know its competitors, which help in focusing on your business. Being acquainted with your competitors helps in deciding on the right price for your product (MasterPack, 2010). A unique and innovative product can be priced high thus increasing your product value.
Knowing your customers is an influence on setting product prices.
Paying attention to customer’s views on your product helps in coming with a better product pricing (MasterPack, 2010). Customer’s satisfaction is the primary need for all businessmen.
In conclusion, for successful businesses, product pricing becomes essential. Product pricing takes time, record keeping, flexibility and creativity (C.U.M, 2010). Balancing on cost of production, competition and customer reaction help in deciding on the right product prices.
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Curators of the University of Missouri, (2010). Marketing. Retrieved from http://www.missouribusiness.net/sbtdc/docs/marketing.pdf
Howard, F. & James M.H. (2004) managing the pricing strategy. Print.
MasterPack, (2010).pricing methods. retrieved from http://www.norcron.com/documents/pricing_methods.pdf
Bathgate, D. (2004) Price indexes for property and casualty insurance, Print.