Price is one of the determining factors for the buyer. Beginning entrepreneurs often do not know how to determine the price of a product or service. Especially when it comes to a new product.
Obviously, the main goal of entrepreneurship is to make a profit. The pricing policy provides the company with a systematic flow of funds, maintains the competitiveness of products and the demand for them. The main tasks that competent pricing solves:
- Getting maximum profit
- Increase in sales volumes
- Return on investment
- Cash flow into business
Cost is one of the main indicators in pricing. It takes into account all costs from production of goods to sale: cost of materials, employee salaries, including social contributions, utilities, rent of premises, depreciation of equipment, marketing services, etc.
Cost plus markup is the price. The higher the markup and the lower the cost, the higher the profit. This approach to pricing is called cost-based.
In a competitive market, not only the cost price is taken into account, but also the prices of other sellers. Competitive price monitoring is important tool in hands of beginning entrepreneur. Determining the price based on the performance of competitors who have similar products or services is competitive pricing. At the same time, you should not forget about the cost of the product itself, otherwise you can get involved in an unfavorable price race, where dumping occurs, i.e. selling below cost to conquer a niche.
Value pricing, or the marketing valuation method, forms prices based on how much a buyer is willing to pay for it. It involves a serious preparatory stage, which includes marketing research, study and demand generation. Costs are also taken into account, because the sales price should cover them and leave a profit.
What else you need to know about pricing
- Too cheap. There is an opinion that for buyers, the cheaper a product is, the more attractive it is. In fact, too low a price can scare off potential clients - people don’t always trust it and look for a catch.
- Too expensive. Unreasonably high prices reduce demand, and therefore profits. There is a psychological mark above which a product will not be sold, especially if there are similar ones. In addition, an increase in price in the event of rush demand may be subject to sanctions by the antimonopoly service.
- Product value. Value is some subjective perception of the usefulness/importance of a product that determines the buyer's choice. However, values often play an important role in setting prices, and it is the job of marketing to communicate them correctly.
- Price increase. This is one of the psychological barriers of novice entrepreneurs. There is a fear that the client will find the price too high and will leave. This can happen if low price was the only competitive advantage. But remember: selling below cost is fatal for business.