How to price your products

Do not know how much to charge for your products or services? Follow these expert tips to choose the best pricing strategy.

Having a great product or service is not a guarantee of success, you must also have a good pricing strategy. That requires that you know your consumers well to know how much they are willing to pay, as well as the prices of your competition. You should also consider the segmentation of the market, as well as the tangible and intangible benefits you are selling.

4 important questions to ask yourself before putting a price tag. Take note:

How much is the customer willing to pay for my product?

If making a product costs a dollar, many companies assume that they should charge two for it, but this is not optimal, says Mark Stiving, author of Impact Pricing: Your Blueprint for Driving Profits.

Pricing should be based solely on what the customer is willing to pay. If the customer is willing to pay $ 1,000 for something that cost $ 100, then you have a successful product. If the customer is willing to pay $ 1,000 for something that cost him $ 1,000, do not increase the price, you will run out of business. To know how much the consumer is willing to pay, do surveys and focus groups.

What kind of client do I want to address?

If you want to reach customers who value your product to the maximum and charge a high price, you can earn more money per sale but limit the size of your market. If you go to the mass market with a lower price product, you will earn less per transaction but you will sell many more units. The ideal situation is to cut the market in segments, and have different prices per product or point of sale, recommends Stiving.

How should I react to my competition prices?

In any strategy of pricing there are basic questions, 3 of them: Who is the one who provides an alternative to my product? Is mine better or worse? and Does the customer care? According to Tim J. Smith, manager of pricing firm Wiglaf Pricing. If your product is better, look for a competitive price and increase it. If it is not as good as your competition, look for a competitive price and lower it. And as the prices of your competition change, change yours too. This strategy only applies when customers are very familiar with prices.

Can I offer different levels of products or services?

It is always better to give customers the choice, says Jean-Manuel Izaret, a partner at Boston Consulting Group. Izaret suggests offering at least three price levels in a product: the basic, the improved and the Premium. She highlights Apple that has entered the market with 16, 32 and 64 GB laptops. If they only offered the 16 GB, they would sell a lot but lose the customer who is willing to pay more for the best.