What is Pricing?

It is the process by which a company establishes the price of a product or service it offers. Following an appropriate strategy to carry it out will help you achieve greater competitiveness. In addition, it will reinforce the loyalty of your customers, since they will maintain their preference for your products over the competition with similar offers.
For these reasons, a pricing strategy is more than a part of business activity: it is an instrument for business growth. Here are the essential factors to establish it and several of the types of pricing strategies that will help you choose the most appropriate to calculate the price of your products or services.

How to Determine the Price of a Product: 4 Indispensable Factors

To start you must remember that prices can vary from a minimum to a maximum; this depends on where they are in the distribution chain. As a second aspect, the price changes according to the phase of the product life cycle. Regarding this last point, we detail below what it is and what role it plays in your pricing strategy. In addition, we will address three other factors that you should understand to maximize the reach of your strategy.

The Life Cycle of the Product

it is the process from its introduction to its exit from the market. It is an element that you should consider in your pricing strategy, since the aspects that affect this cycle (such as demand and duration) are decisive when establishing what changes your company should propose. By keeping this in mind, you will adapt products to the changing needs of consumers.

The Determination of Very High or Very Low exit Prices

this factor represents a double problem because normally these prices do not produce the expected response from the customer and, therefore, there is an operational risk. For this reason, prices should be aligned with the policies and financial objectives of your company without forgetting the prices that the competition has.

The Previous Analysis of your Company

it is an important factor to know the state of your competitive position and your market share, so you will know what you should plan regarding the image of the brand, the usefulness of the service, the quality and the characteristics of your offer regarding other products or services. And all this you can only do with a prior analysis of your company.

The Analysis of your Competitors

just as it is important to know the state of your company, it is also important to know that of your competition; This will allow you to understand the perception that the public has of the companies in your line of business and to know what the consumer believes is valuable or important about all these companies will help you to better define your pricing strategy. That is why it is one of the aspects that must be integrated into the buyer’s journey .

Analyze your Market and Set the Criteria

In addition to the four factors that we just mentioned, you should do a market research to discover what is the ideal niche for your product. For this, it will be useful to apply surveys, both direct and online. This way you will have more reach and your potential customers will also give valuable opinions. About how much they would be willing to pay for your product.
All this information will open your panorama regarding the pricing scheme that you elaborate and will allow you to nurture your parameters to determine the prices of your products or services.
Remember that the price policy must be consistent with the product policy. That is, there must be a correspondence between quality, characteristics and prices. Additionally, pricing strategies should be tailored to your company’s needs as follows:

  • Find out if a special price will work if your goal is to introduce a new product to the market or to reach other sectors.
  • Maintain a stable margin between producer prices and supply.
  • Create strategies based on the profit margin you are looking for.
  • Launch offers or promotions if you want to counter the competition.
  • Identify the factors that would help you create a premium price (this will allow you to increase your profit margin).

1. Price Strategy in Relation to the Competition

There are several pricing possibilities based on this criterion. When your competitor’s prices are lower than your company’s, the difference will need to be justified to buyers; this price is known as the prime price.
If the prices of your product were lower than those of the competition. The disadvantages will be compensate before the opposite offer; This is also known as the discount price. Or, with an average price (which could be similar to that of the competition) you leave room for the consumer’s free preference.

Characteristics of the Pricing Strategy in Relation to the Competition

  • It focuses on the attention to the competition.
  • It is possible to set high, low or average prices to the category.

Example of a Pricing Strategy in Relation to the Competition

See how the first accounting payroll software offers a price that represents less than 50% of the price that its competition offers in the license. In addition, the investment for the update is 30% lower in relation to the same offer. In this case, the strategy uses a discounted price or low price that gives you an advantage when comparing the prices set by the second option.

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