Once you’ve created a product, how do you price it appropriately? There are many things to consider. How does your pricing impact your brand? What price will induce more sales? Which will result in more net profits at the end of the day? What price makes sense in a short-term outlook and what price makes sense in a long-term outlook?
Here’s the process of pricing your products and services appropriately.
==> Think about Brand and Positioning
How you price your products affects how your product is perceived.
Do you think Mercedes would still be prestigious if it were priced at the same price tag as a Ford model?
On the other end of the spectrum, Southwest Airlines is known as being the cheapest airline. The price isn’t just about product pricing; it’s an integral part of their brand and overall marketing strategy.
Before you price your product, think about your overall brand strategy. Make sure your price ties into that brand.
==> Start at the Market
If you’re new to the market, it’s usually a good idea to price your product at the market. Why? Because the market has already proven that they’re willing to pay a certain price. Other companies have also shown that they’re able to make a profit at that price.
The exception is if you have a good brand-related reason to deviate. For example, when Apple came into the MP3 player market with the iPod, they were many times more expensive than any other player on the market. They could do it, however, because their product “put 10,000 songs in your pocket.”
==> Think about the Back End
As a rule of thumb, when you increase your price, you’ll get less sales. When you lower your price, you’ll get more sales.
Sometimes fewer sales means more net profits. After all, if you make 10 sales at $1,000 each, that’s more than 50 sales at $100 each.
The goal then in most cases is to find the optimal mix of sales volume and profit per sale.
It’s important to keep your backend sales in mind when you’re gauging your price. Sometimes it’s better to take a smaller profit up front, if it results in more customers in your customer base.
For example, printer companies regularly sell printers at no profits or even a loss, because they know that they’ll make their money back when you buy ink cartridges. Likewise, sometimes it makes sense to price your product low just to get someone in your customer funnel.
These are some of the most important factors to take into consideration when pricing products and services. Start with the market price, then change it according to branding and marketing strategies.