When determining your marketing strategy, price is an important element. Bev Cook of Simple Marketing Consultancy advises on setting the price of your product or service.
The base line is that price is determined by demand which in turn is driven by the perceived need of the purchaser and the level of suppliers available to buy from. A good rule of thumb is therefore that a high demand and high perceived need against a low number of suppliers will enable the seller to command a much higher price. Similarly, the greater the choice of suppliers spreads the demand and therefore the level of price competition increases.
I don’t normally like quoting from text books, but Maslow’s hierarchy of needs illustrates quite nicely some of the needs a potential buyer may have which create demand. These will vary from basic needs of food, warmth and shelter to those driven by more modern day trends such as the need to “keep up with the Joneses” by having the best car, the most modern TV, to the kind of demand that is driven by an affluent population with a larger disposable income who are lured through good advertising to buy the latest fad or fashion item, to those who are so passionate about a hobby or interest to the point that price isn’t even a determinant factor – they’ll pay almost anything!
So, when setting a pricing strategy the challenge for the business owner or manager is to understand the demand or know how to create it – the demand may be there already or be a latent need created by effective marketing – and to then align this alongside the following additional factors as follows:
- Determine the base cost of the product/service in terms of materials and or labour. Add to this any overheads and marketing costs, and you have the total sum of money you must make in order to cover costs.
- If costs are variable and economies of scale can be gained depending on how many you sell, ensure you know exactly the point at which you break even.
- Assess the market and determine demand and competition.
- Put a figure on the profit you would ideally like to make and set a selling price that takes in to account the above factors, then weight it accordingly to the prestige and quality you wish to associate with product or service. Setting a low price will not necessarily guarantee high volume sales as this could de-value your product/service and deter potential buyer who may perceive your offering as cheap and of poor quality and buy a more expensive alternative simply because their price expectation has been pre-determined.
- If possible do some research and test the market to see where you get the best volume of sales but are still able to achieve sensible profits.
- Prepare your marketing and sales strategy and evaluate success regularly to ensure promotional tactics are flexed to achieve the best lead conversion rates.