The pricing of your product or service is a key element in determining the profitability of your business.
However it is not always to easy to get it right.
If your price is too high demand will reduce and you may price yourself out of the market.
If your price is too low, your sales volume may not generate enough revenue to cover the costs associated with your business.
People may also believe that the product or service does not offer value at such a low price.
Why Is It Important?
- Pricing is a key determinant in the decision making process customers use to purchase a product or service
- It is important to establish how much your target market will pay for your product or service.
- Shows you how sensitive your customers are to changes in price.
Pricing For Different Life Cycles
At different stages of your product or service life cycle you may change your pricing strategy to suite your business needs. This includes when you are selecting which strategies to focus on.
Low price strategy – used to encourage trial of your product or service. As well as repurchase on a regular basis.
High price strategy – used to generate profits to cover launch costs. Product or service may have a unique point of different.
Low price strategy – used short term to stop new competitors entering the market.
High price strategy – used to grow profits.
Decline or Maturity Stage
Low price strategy – used to generate enough revenue to cover costs.
High price strategy – used to maximise revenue in order to fund new projects.
Price sensitivity is the extent to which a customer’s purchase will be influenced by price.
The less price sensitive your customers are, the greater control you have over your pricing.
The more price sensitive customers are, the more you need to monitor your competition and the market to ensure you remain competitive in the market.
- Commodity products such as regular bread or milk.
- Similar products or services available in your market making it easy for customers to switch.
- High competition in your local area such as 10 gyms in one suburb.
Less price sensitive
- Exclusive or tailored product or service or value added product or service such as bread with soy and linseed
- Unique product or service
- Businesses that are located in an area with limited competition such as airport retail outlets.
Setting your pricing doesn’t have to be difficult and it is well worth the time to make sure it is right for your business and customers.