Four Critical Elements Help Set The Price
- The product or service itself. What distinguishes your product or service from those of your competitors? Such distinctions might include quality, expertise, durability, low maintenance requirements, ease of use, limited availability, or any other characteristics not readily found elsewhere. Each of these features has a value that can be factored into your price.
Conversely, the more your offering resembles that of the competition, the less wiggle room you'll have in your pricing. Top justify a higher price, you'll need to offer a higher level of service or convenience.
- Customer needs, desires, and perceptions. Know your customers. Some people will spend more for a product if it is sold at an upscale location, or for services offered by a firm with a prestigious name. Such customers often equate high prices with quality. Others are unimpressed with image and will go out of their way for a bargain. Everyone will pay more if their perceived need for what you're offering is great enough.
To determine customer needs, wants, and perceptions, you can read marketing literature, pay for market research, or just ask questions. Talk about your product or service to customers, sales people, business associates, accountants, and friends. Ask what they value most about what you provide and what might make them more likely to buy from you than from someone else. They try to determine how much they'd be willing to pay for that attribute.
- Peripheral services. These are services that are not integral components of the product or service you're selling. Examples include prompt delivery, free delivery, guarantees, warranties, liberal return and refund policies, or other sale enhancements. Each of these services has a value that can be factored into your prices.
In assigning a value, consider whether customers will regards the peripheral service as essential, merely convenient, or a dispensable frill. The amount can add will increase with the urgency of the customer's need or desire for the service.
- Costs and competition. Although costs and competition shouldn't be your only focus, they are important components of pricing. No matter how good you think your product or service is, if somebody else offers something similar for less, you'll be in trouble unless you provide a distinction that the customer values. And if your carefully developed price will not result in an acceptable profit margin, your business will be in trouble.
Skillful pricing requires analysis, intuition, and experience. If you'd like to discuss pricing your own products or services, we'll be happy to help you run the numbers and analyze the variables.