According to several studies and researches, pricing is one of the top 5 factors that decide if customers buy your product or not. If you set the price or the product too high, your customers will start looking for another product right away. If the price is too low, you will not get the profit you desire. It is always a math that the result should satisfy both customer and seller so we need to have the effective pricing strategy.

Do you know that if you get the right price, everyone will be happy with the result?

Three Ways Of Pricing A Product

There are three basic approaches to pricing:

  • Production cost plus a percentage of desirable profit
  • The price that customers are willing to pay
  • The price based on competitor’s price

It will be simple to choose one way of pricing instead of combining them. However, it is the most efficient method to include all three methods with regular reviews of the price. With the method of combination, you can ensure you product price meet all the requirements for a successful pricing strategy. You can earn profits while customers enjoy a reasonable price and your competitor has to think of a pricing strategy to compete with yours.

Pricing strategy: know your customer, know your product


Pricing Strategy: Know Your Customer, Know Your Product

There are several factors a business should take into consideration to form a successful pricing strategy. Below are some most important aspects when you set the price of a product.

Know You Product – Cost Of Goods Sold (COGS)

To calculate the costs, you need to include costs of production (materials, labor, etc.), storing, and delivery as well as total overheads, sales, and marketing expenses. COGS sometimes include the very minor costs that many do not put into account like superannuation payments or electricity. But it is important to include all relating costs to have the most accurate data. Calculating COGS can be complicated so be patient and careful when calculating this.

When doing the COGS calculation, there is one more figure you need to calculate: break-even point. This is the number that shows how many sales you have to make to start making a profit. Break-even point is important in setting up pricing strategy, marketing strategy, and sales strategy.

Once you get all the number and your revenue target, you can roughly estimate how much you should charge your customers to cover all the costs and make profits. Remember this is not the final price. It needs to be put in review with other factors below.

Know You Customer – How Much Is The Customer Willing To Pay?

In every business, it is vital to listen to you customers because they are the ones who buy. Without customers, your business can’t survive. It is critical to pricing, too. If you set the price only based on the COGS and desirable revenue only, it can be too high that customers do not want to buy.

You can gather your customers’ opinion by conducting some forms of market research, including email surveys to existing customers, research by a third-party consulting firm. Market research and consulting firms have their database and networks of your market and potential customer segment. They can generate reports on customers’ buying behavior, customers’ reaction to a new product, or price segments, etc. The demographics can be either from existing data or newly conducted surveys upon special request.

Once you get the data and consultation, you can reconsider the market segment you want to enter, and what should be done to be successful with your choice. You then calculate the price range that customers are ready to pay for your product. If it is much cheaper than the COGS and the price based on COGS and desired revenue, you might need some change in production, or marketing, or sales strategy. Getting many customers is important, but ensure your profit is no less important.

Pricing strategy: know your customer, know your product


Know The Market – What Is The Demand And Lifecycle Of The Product Range?

You should conduct market research to understand the demand of the market. When the need reaches its peak? When does the demand decrease? These will decide how long you can sell the product at the premium price. After that, you may need to drop a price a little when demand goes down. This is especially relevant to the seasonal industries like gifts, tourism, and F&B.

The technology industry, for example, a mobile phone company may introduce one to two generation of a smartphone model each year. When a manufacturer launches a new generation, the demand for the prior version drops. This is when you need a price drop to attract customers. To maximize the profit from a product, study its life cycle and decide a pricing strategy based on that.

Know Your Competitors – How Much Do Your Competitors Charge?

Comparing is the instinct of human beings. Your customers are not an exception. They will compare product features, warranty, bonuses, and mostly price. With two similar products, the cheaper one will be more likely to get bought. So, unless your product stands out of the competition, make sure to check the competitors’ price.

If possible, besides knowing the competitors’ price, understand the reasons for their pricing strategy. What you need to pay attention is the net price as well as the published price. You should also study the market react to the competitors’ prices. Put every product specification into the comparison and be honest. This is vital to a successful pricing strategy.

If your competitor’s product has additional values that yours doesn’t, you may need to consider a lower price to be able to compete. If your product has some features that are missing in the rival’s product, you can set a higher price. Make sure to present to customers the reasons for such difference regarding quality, cost savings, after sales service, additional values and buying experience.

Pricing strategy: know your customer, know your product



When you get all the data above, put them all into consideration to set the best price for you, your buyers and the competition with other businesses. You can only gain the ultimate success when you can combine all factors into your pricing strategy. It can be tricky and challenging, but this is the only way to win. Pricing strategy is no less important and vital to a product’s success and profit than a production strategy or a sales strategy. Get it right and maximize your profit.

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