In the last twelve months, two out of three businesses made price adjustments to their products and services. This has been largely due to surging inflation and its financial repercussions on business establishments. Finding the value of your product is crucial to any business because it secures profits and enhances growth. However, many factors are involved when determining what would be fair to consumers to pay without affecting business revenue. Here are some tips to consider before selling a product or service.
- First, look at the competition you’re up against
In business, competition is intense and considered a necessary evil. Everyone in the same industry as you takes measured steps to grow. One of these steps is to ensure that their pricing is competitive and more favorable to the target audience. Your competition understands that valuing their product a little lower than yours can significantly impact annual profit margins. This happens because consumers naturally gravitate towards lower product prices that offer value. Indeed, trading laws emphasize fair pricing strategy; however, not all tactics are illegal. This is how your competition manages to stay one step ahead when they lower product prices by a dollar or two. Anything more will be predatory pricing, which is something a strong competitor would avoid because of the illegalities. After gathering appreciable background into your competitor’s pricing strategy, it is time to plan yours. Note that the value attached to your product or service should be reasonable and justifiable.
- Consider the manufacturing cost
Manufacturing cost plays a crucial role in determining the value of a product. And direct labor, direct material, and manufacturing overheads are all factors to consider when assessing these expenses. The basic economic principle will tell you that when manufacturing cost is high, the final price is likely to be elevated too. Some businesses with high manufacturing costs may break even. However, for many small businesses, breaking even may not be an option. Now, how do you determine the pricing after considering the manufacturing cost? Successful businesses recommend setting a price limit for customers and comparing it to your competitors’ offers. The tip here is to keep it as close as possible to the prevailing market value of the same product or service.
Using this strategy, you will likely discover the bottom and high-price ranges for all categories of consumers. Did you know that you can finance your manufacturing costs in two different ways? This is extremely helpful when your company serves a segmented target market. This is for you if you sell to lower/middle classes and high-end consumers. Expensive manufacturing costs can be spread onto high-end target markets that can afford your products. On the other hand, affordable or least expensive manufacturing cost makes it possible for the lower and middle classes to assess your product.
- Research, test, and revise
A lot of thought and effort goes into deciding how much to sell your product or service. It is also true that these strategies are not entirely effective for all business models. It pays to understand your business model before adopting the right strategies to determine your product value. The last thing you want is unintentional disengagement from your primary audience. You can avoid this by researching, testing, and revising your pricing methods. Conjoint analysis in marketing research is a reliable method for making such decisions.
How can you test your product value? It starts with a survey to check the market and how people react to a high or moderate selling point. It’s easier to know the answer when your survey questions are well-crafted. Often, a survey gives you an idea of factors that drive customer purchases. You can deduce from their responses the factors influencing their decision to stick with a particular brand. When you understand it from this perspective, you can set your product value to meet needs and demands.
- Understand your unique selling proposition
Anything that sets your business establishment apart from competitors is your unique selling proposition (USP). It plays a significant role in your selling point strategy. Undoubtedly, the business market is not always fair, especially because there is always a cheaper alternative. Indeed, many companies offering low-cost alternatives dwell on predatory and unfair pricing strategies. That, however, should not be a problem for you if you work hard on your unique selling proposition. When you shop at the mall or supermarkets, do you see products labeled ‘New and Improved,’ ‘Advanced Formula,’ ‘A Different Experience,’ and so on? These form part of the unique selling proposition brands use to their advantage. Surely, you can do the same for your product to justify the price.
It is important to define your promise in short but targeted language. This is how to convince consumers and customers to patronize your products no matter how high their selling value. There are some precautions you must take with unique selling propositions. The first is to avoid over-promising. If it backfires, the risks of losing customers will be high. You may also be tempted to under-promise, which can be a two-edged sword. If the product exceeds expectations, you can be sure that consumers will not mind the pricing. On the other hand, under promising might end up going against you. USP is a balancing act, and getting it right is important.
- Consider how much profit you want to make
Every business wants to make profits, but the question is, how many make these projections? It’s not enough to want to make profits at the end of the year. Putting a figure on the sum and timelines for achieving them is the way to go. When you think along these lines, it informs the decision to work harder on your product value. Successful businesses that do this base their calculations on how much profit can be made from each product. This means after factoring in manufacturing costs, the extra dollars on each product is the profit. The temptation here is the risk of inflating prices to exceed profit margins.
The danger with price inflation is the increased risk of losing existing and potential customers. Moreover, your business may have difficulty getting into the good books of the consumer even after reducing prices. Certainly, it is good to make high profits for your business. However, it must not be at the expense of your customers and your business reputation.