Your pricing is one of the most important aspects of running your business. It seems self-evident, but this point seems to be missed by many owners.
Pricing is how much value your company will receive in exchange for your products or services. It goes without saying that this is a crucial element for keeping your business viable.
Your pricing decisions have a direct impact on your bottom line and viability as a company, do not take it lightly. You must price for your target buyer persona! Let's delve deeper into the factors affecting the price.
Basic Pricing Factors
Price is going to reflect a number of different processes and inputs. The price of a product is going to be determined by the manufacturing cost, competition, market conditions, the quality of product, transportation, and in some cases the, region of origin. Before going to market you have to have good idea of what kind of pricing will be best suited for that particular market you are entering.
When setting your price you have to make sure when it sells that you end up making a profit after all your hard work! If you fail to cover your cost you won't be in business for very long!
There are a number of different ways to manipulate pricing to attract more consumers. A good strategy involves gaining more demand than the product can supply - in other words, a consumer surplus relative to product.
Concepts of Product Pricing
Marginality pricing is the most basic form of pricing models. This is where you set the price at a level where marginal revenue is equal to the marginal cost. While basic and straightforward, most businesses do not use this pricing model - because every business is dealing with different market factors.
Pricing is pivotal to your success. A good way to think about it is as a demand regulator - meaning, that demand for product will fluxate based on price. Product demand will either go up or down depending on your pricing.
You need to have a good understanding of the factors affecting the market when setting pricing. Here are 4 common objectives that pricing aims to achieve
Guess what we’re going for here!
This is the most common pricing strategy, and pay off is the most over a long course of time. A good way to get a sense of how much you can get away with charging is looking at the market and seeing the most expensive look-alike product to yours.
Keep in mind that just because you set your price high doesn’t mean there is going to be demand. Think about why the other company is charging that high price, and also ask if it's even turning over quickly enough to justify the price.
Increasing the Sales Volume/Market Share
This is one of the lowest hanging fruits in terms of increasing sales and volume. Simply discount your product. While in the short run you will bear a loss of profit because of the lower price, the shortfall can be made up for with volume of sale.
Another positive aspect of dropping prices is that you can increase your market share of customers. Lowering your price compared to your competition will help give you more customers.
Have purpose behind your pricing. If you’re dropping your price to get more customers, then you are going to need some sort of follow up. If you’re going to maximize your profit than anticipate having a slower sales cycle. Whatever it may be, make sure you’re prepared.
Meeting the Competition
Have you looked at Southern’s price book? Another pricing strategy is to meet or beat the competition with your pricing. Sometimes a simple price change can help ease competitive pressure.
Appealing to Consumers
Whatever your product may be, you should always be taking your target customer into consideration. You can easily price yourself out of the market. For example, what if you are trying to sell a high-end wine to a bodega in Detroit? Probably wouldn’t go too well.
On the other hand, if you know where you are trying to get traction in sales, price your product to reflect the local demographics. Selling your cheaper wine to an area that has a lower income isn’t a terrible way to help gain traction with your sales. The only catch is that you need to research and do your due diligence into marketplaces before attempting to go to market there.
Price your product for the market your wine is going into! And be prepared to adjust it!
We see a lot of companies that stick to their guns and refuse to budge on their pricing - and that’s fine, but it's quite detrimental to your growth as a business. Say it with me - THE MARKET DICTATES YOUR PRICE. You can dictate your strategy, but ultimately you need to be adaptable to what the market wants.
Which brings us to the final point. The best pricing strategy in the world doesn’t matter if you don’t have a business strategy! Merchant23 has created an eBook that talks about the winery direct sales strategy. If you’re looking for a solid how-to guide on how to conquer the market, just click and download below!