One of the hardest parts of launching a new product is determining its price. After putting so much effort into its research and development, the product may seem priceless to you, but it’s important to detach yourself from these emotions so you can come up with a fair, yet profitable pricing strategy. Here are the things you need to consider to create the ideal pricing strategy for your product:
Your Customers
Before you price your products, it’s imperative that you get to know your customers to understand what they would be comfortable spending. Invest in market research to see how much your customers typically spend on products in your category. Do your customers care more about quality or price? Where do they shop? How much do they spend per trip? Ask questions such as “if product A was priced at $X, would you buy it? What about $Y?” This information will help you set a range for your product’s pricing so you can appeal to your target market.
Your Competitors
As you analyze your customers, take a look at your competitors, too. How are they pricing their products? Once you have this information, you can take a few different approaches: price your product lower than the competitors to appeal to price-conscious customers, or price your product above competitors so customers perceive you as higher quality. But, if you do choose to price your product above competitors, be sure you can justify the extra cost to customers by clearly advertising a unique feature or benefit of your product that competitors don’t have.
Pricing Objectives
What exactly are you trying to accomplish? Every business is trying to make money, but what are your pricing objectives? Companies that are about to approach investors often want to be able to show profit, so if this is your goal, you have to price accordingly. On the other hand, companies that are hoping to penetrate the market as quickly as possible to beat out other competitors and steal market share may want to focus on maximizing the number of units sold. In this case, price your product competitively just to entice customers to buy it in the beginning.
Cost
Regardless of what your customers want, how your competitors are pricing their products, and your own pricing objectives, you have to consider the cost of creating your product before finalizing its price. Be sure to think about both the variable and fixed costs of your product so you can calculate exactly what you need to sell it for in order to make a profit. This should be done before taking any other factors into consideration.
Remember, distributors, wholesalers, product brokers and retailers all rely on you to develop a pricing strategy that makes everyone in the supply chain money, so this is a task that should be taken very seriously. What things do you consider when creating a pricing strategy? Let us know if anything was left off of this list in the comments below!