How to Price Your Products in the Best Way Possible To Gain Maximum Profit
It is but a matter of good sense to plan the prices of your products well since, that is what affects and attracts the customers more than anything else. But, pricing your products can be tricky especially when you are a start-up or when you are an online vendor. You may even need to cut down on your profit to build a strong customer base initially. Thus, to help you choose the best strategy we have some of the models for you to choose from.
- Prices Based On Cost of Production
Cost based pricing is the most basic pricing technique. You do not have to do any market research for it. You need to determine all the inputs that go into the product which include the cost of the raw material, transportation, manufacturing cost, labor, advertising cost etc. The cost should be inclusive of cost both in cash and otherwise. After determining this cost adds the markup cost to get your final retail price.
However, if you are not the manufacturer but outsource products, then you can estimate a profit margin that is not based on the production cost. Apart from that, you can also break up the price by offering a discount in case someone orders a product in bulk.
- Price Based on Market Competition
This method is called for in the scenario when you have a considerable competition in terms of both existing and emerging businesses. You need to do some market research here to come up with a price. Although, you can slightly vary the price on the grounds of packaging, size, quantity, flavor or design; you need to keep the price of your product comparable to other similar products in your competition. However, for a start-up to make its presence felt in the market, they need to reduce their profit margin. This will help in drawing and building more customers.
- Price Based On Customers’ Needs
This type of pricing suits those store owners who keep the customers’ buying habits and their attitude towards a specific price range or a change in that, more in focus. Here, you need to offer more discounts, coupons, freebies and other such attractive offers to lure the customers. You can increase the volume of your sale by offering a discount on a large purchase order. For example, you can give them a discount of 15% on order value of INR 2000 or above. And if you do not want to compromise on the product price then you need to highlight its special feature that may justify its pricing. For example, attractive packaging, exclusive product etc.
- Pricing Based On the Psychology of the Customer
These days, stores generally offer their products on prices that are one less than the rounded off figure, like INR 99, INR 599.99 etc. This plays a psychological trick on the minds of the consumer and he feels that it is a lower price than usual. It is a very cost effective method. However, the consumers today are very intelligent so this technique may not always work. Secondly, it is more suited to the retail stores than the wholesale sellers since, evidently, these figures are more difficult to calculate.
- Price Based On the Targeted Return
This method is suitable if you want to determine the price based on the capital invested in your company and the ROI. You can use the following formula for it.
Unit cost + (desired return X invested capital/ unit sales)
However, this method fails to take into account the market demands, changing prices, competitions and profit increments.
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