Pricing Your Product or Service
Author: Megan Siwik
After attending the Entrepreneurship Workshop, in Dicke Hall on February 26, 2013, I learned a great deal on how to price your product or service in order to be successful. Dan Fox, an alumnus of ONU, spoke on how price conveys image, perceived value, beating the competitor’s price, pricing to make a profit, understanding your customer and the four Ps of the marketing mix.
First, you have to understand that price plays a huge part in the perceived quality and value of a product/service. Many will pay a higher price for more value. An example of this would be the high price some will pay for a Bentley because they know for a fact that it is quality, prestigious and unique. A common mistake many small businesses will make is not recognizing the extra value and other benefits they offer to the consumer and they price their products too low.
Second, you have to take into consideration your competitors pricing and realize that the world is very competitive. Consumers are always comparing products/services to look for the best price or quality. The key is to differentiate your product/service so that customers are willing to choose you over your competition. Don’t be afraid to look into your competitors pricing and what they have to offer their consumers.
Third, pricing to make a profit is key in order to be successful and to keep your business open. Pricing is directly related to profit, but it is only part of a more complicated calculation. These calculations include finding your gross margin, break-even point and how many units/service hours it will take to make a profit. Something to keep in mind is that raising prices does not directly mean there will be an increase in profit. If you have any specific questions on how to do these calculations then stop in at the Community Economic Development Center and a business counselor will help!
Fourth, you need to know your target market and their needs! If you do not know who your customers are then you do not have anyone to sell your product/service to. It is important to know that you cannot sell to everyone; you have to pick a segment of the market to target specifically. Failure to do this for a small business can lead to failure, the best way to avoid that is to pick a market that you can serve better than the competition and have a need for what you are selling.
Lastly, you MUST know the four Ps of the marketing mix. The four Ps include: product/service, price, placement and promotion. All are intertwined and pricing is dependent on the other three. Your product/service will be priced depending on the types of attributes such as quality, features, options, services, brand name, and warranties. Placement refers to how your products are distributed to your customers. Examples include: retail, ecommerce, door to door, business to business and etcetera. Some of these distribution channels will be more expensive and this will show in the pricing of the product/service. Promotion includes all that goes into marketing and advertising your product/service to the people. This could include: sales promotions, public relations and other channels you decide to use for marketing. Although promotion can be expensive it is worth the spending in order to let your target market know that you exist and what you have to offer. Some overall closing advice on pricing would be to define your market, promote wisely, price to perceived value, to make sure your target market appreciates that value, to choose the most effective distribution strategy and to always be mindful of your profit.