How should you price your products?

Editor | Sep 10, 2020

Indian consumers are a price-conscious lot. Period. So when you think of pricing your products, you may want to ensure your prices are such that your target audience does not equate them to burning a hole in their pockets.

General steps to follow in setting product prices

    Set the pricing objective

    This is one of the most important steps.

    Setting a low price might attract more customers and fetch a larger market share for the product while a higher product price may reflect on the quality of the product.

      Decide the demand for the product

      • The demand for the product on all marketplaces is a factor that sets a ‘ceiling price’.
      • Make use of “penetration pricing” strategy when the product has a highly elastic demand and there is strong competition for the product in the market.
      • This policy is generally followed during the initial stages of introduction of a new product.
      • Under this policy, prices are fixed below the competitive level in order to obtain a larger share of the market. Once the product is in demand or is accepted in the market, the price can be increased.

      • But when the demand for the product with respect to price is more inelastic, higher prices are charged for the product.

      Estimate costs and profits

      • The amount spent and expected return is a key factor in deciding the price.
      • The various costs involved in producing the product must be covered in pricing the product.

      Identify competitors

      • All possible competitors for the product and the policies they follow are important factors.
      • If a case arises where the product is similar to the products sold by competitors, using competitive pricing is the best option.

      Selecting a suitable pricing method/policy

      Pricing research and adopting test-marketing techniques are useful to determine the right price for products. The various pricing methods are:

      Perceived value pricing

      • A pricing policy in which a price is set in relation to the value perceived by the customer.
      • Such a perceived value depends on several factors like the customers’ image of the product’s performance, warranty, trustworthiness, esteem, etc.
      • Each customer gives different precedence to these factors. Some buyers may be price buyers or value buyers or even loyal buyers.
      • The company’s potential profits may depend on whether the price is higher or lower than the value perceived.

      Value pricing

      • A policy in which companies develop brand loyalty by charging a fairly low price for a high quality product.

      Going rate pricing

      • A pricing policy followed by companies by setting the price as same as, more or less, than the major competitor’s price.

      Premium pricing

      • A policy that can be applied when a product is innovative and the competition for it is low or non-existent, thus optimizing profits.
      • However, prices are lowered when competition arises for the mentioned product.

      Ethical pricing

      • A fixed price is kept, keeping the welfare of the society in mind.
      • The product is sold at the lowest possible price with either a very reasonable margin or no profit at all.
      • This particular policy is used for many life saving drugs.

      Full Line pricing

      • It is a policy that retailers use to categorize goods based on cost creating different quality levels in the customer’s mind.

      • Product line pricing is more effective when there are ample price gaps between each product category so that the consumer is well informed of the quality differentials.

      About Author

      Editor

      Editor

      Editor team is specialized in introducing the marketplace content targeting the Indian online sellers. They plan and coordinate to bring the appealing content for the small businesses on how to partner with the e-commerce sites like Amazon and Flipkart and strategies for improving their online business. 




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