Pricing Your Product
In our last Marketing tip, from our series on the Four P’s of Marketing, we started talking about how to price your product or service. We discussed the importance of understanding and describing your product in terms of the value that it brings to your customers. Today we are going to look at how to actually come up with a price that people are willing and able to pay.
Gathering Pricing Data
What is your product or service worth and how much are people willing to pay? Answers to marketing questions such as these don’t just come out of thin air. There is a relatively easy and straightforward process that you can follow in order to come up with a price. As with all decision making, data will be key in helping you figure out exactly what to charge. There are two primary data points that you will need to seek out and utilize:
- What are your costs associated with selling a single item or service?
- What does your competition charge for similar products or services?
Your costs are important for multiple accounting purposes, but from a marketing standpoint, we are merely concerned with understanding our break-even point. This allows us to know the bare minimum we would need to charge to at least break even.
Your competitor’s pricing will give you a range that tells you what people are already willing to pay for similar ideas to yours. Depending on your industry, the mix of your competitor’s pricing could range from just a few dollars to hundreds of dollars or more. That is OK because the main point, at this moment, is simply to understand the actual price range that your product could be sold for.
Setting Your Product’s Price
After figuring out your costs and price range, you need to understand the factors that account for the differences in pricing among your competitors, things like quality, features, level of service, experience, etc. For example, we can all agree that there is a big difference between a $5 pizza and a $25 pizza. Understanding your competition and the market that you are in allows you to predict what your customers are going to expect in terms of quality and experience based on where you set your price.
Pricing your product does not have to be hard. So where do you fit? What are your goals? Are you looking to make money off of low margins and high volume? Then pick a price on the lower end of your industry’s price range. Or perhaps your passion is providing a high-end and pricier experience to a select few. Maybe you want to be known as the best value around by offering a higher quality experience at an affordable price. This means you would fall into the mid-range price.
It’s not all About Price
At the end of the day, price matters. But remember that you never want price to be your main marketing strategy. Simply trying to “beat” your competition’s pricing always leads to an inferior experience for the customer. Instead, lead with your value to prove your worth. Tell your customers what to expect and then meet those expectations. That is what will lead to marketing success.