Last updated on Oct 29, 2020
How To Set Right Price For Your Products (The 6th strategy will amaze you)
Is there anything like “the best prize” or “right cost”?
I doubt so.
Well, considering many factors will enable you pick a suitable price for your product.
One that will make you have a reasonable gain and also not make your potential customers run away.
Choosing a right pricing strategy involves both art and science. knowledge of Psychology is important in this.
Let’s go straight to the point!
How to set right the right / appropriate price for your product
As an entrepreneur, you start a business with two things on your mind.
one, to impact on the society. Two, to make a profit.
In this race, you don’t want to overcharged your customers, neither do you want to undercharge them.
Most people think that setting a very low price will make you gain more customers.
While this is true, it is not completely true.
pricing so low might make your customers term you as “Cheap” and “substandard”
“Dem say better soup, na money kill am”
Most people want to spend to get the best quality
Here are things you should consider before setting a price for a product.
1. Know your costs
By costs, I don’t mean only the money you used in buying the product but also every dime spent on getting this product done.
These costs can be categorized into materials, overhead, labour and time
Let’s take them one by one.
- Materials cost:
This is the cost of the materials or product.
Firstly, If you sell shirts, then this is the cost of the shirt.
Secondly, If you are a dry cleaner,then this is the cost of your washing machine and pressing iron.
Thirdly, if you render service that doesn’t require purchasing a product, then you can skip this.
This includes every money spent on that product excluding those spent on labour and materials.
This includes fees like transportation and security levy.
There are two kinds of overhead fees.
Fixed and variable overhead fees.
Fixed overhead fees are fees that you must pay regularly. you have no control over these fees. This include security fee, rent and tax.
While variable overhead fees are fees that you pay but not regularly and not compulsory.. example: advertisement fee, marketing fee, discounts..etc
This can also include one-time payments..
Meanwhile, This implies to those that have workers employed.
“person wey work suppose chop”.
Certainly, you need to pay your workers.
As a business man or woman. Time is very important.
The popular saying “time is money” cannot be over-emphasized.
How much of your time is spent on that business?
Does it affect your main job?.
If it does ,your product/service should cost more.
In dry Cleaning sevices, there are customers who are willing to spend more to get their clothes dry-cleaned immediately.
Time is money.
2. Study your customers
Your customers are the ones who will pay you. so you study them.
Studying doesn’t necessarily mean you would interview them on something like that.
As an entrepreneur, you should know the kind of people who would patronize you.
The people who live nearby. Are they rich? Can they afford your products?
3. Study your competitors
You need to beat your rivals..
“The first step to winning a football match is to know your opponent”
how do people patronize them?
What attracts buyers to their shops?
Do people like their services?
What is lacking in their products or service?
Do they have home delivery service?..
Pricing strategies / techniques to use.
After taking note of the aforementioned things.
You should know your costs and set the profit you expect.
But this isn’t all. You need to know the various pricing techniques and know when to use them!
1. Demand / Dynamic pricing
The two keywords are Demand and Dynamic. Dynamism means Change.
In this pattern. Prizes vary / differ from place to place, depending on demand for a particular product.
Let me give you interesting examples:
Why do people pay N100 for transportation to a certain place everyday ,but when it is raining or when it is late at night, they pay almost twice that amount???
This is simply because of demand.
When it is raining, you need to enter a transportation bus urgently.
Another example is the price of ordinary sachet water in stadiums or gyms.
I remember clearly when I used to play football in school stadium. The price of water there is more expensive. Because of the demand for water immediately after exercise.
I can go on and on with examples subsequently…
but let’s ride on!.
Apart from this kind of pattern, you can also sell a product to different kinds of people at different prices.
For instance: The price you seek to a customer that wants to buy a single product will definitely be different from a retailer that wants to buy in large quantities (bulk).
2. Cost-plus pricing
As the name implies, you add some extra money to your cost price.
This is the usual system we know, without taking consideration of demand and your competitors price.
In this pricing strategy, we add some amount on too of our cost fee.
Note that you must add all costs in your calculations.
These costs include:
This direct cost is the main cost of the Tshirt.
This indirect cost is the cost of other things you spent in the process of buying the shirt. This include money for transportation,and the workers you are paying.(if you have workers),and the money you used to rent your shop.
For example: You bought a T-shirt for N800.
You spent about N200 on indirect costs like transportation.
You want to make 20% profit, therefore you choose to sell that shirt for N1,200.
This price doesn’t depend on the price your competitors sell the same shirt for.
3. Penetration / high Market share
The most important thing on any entrepreneur’s mind is for his/her products to go as far as possible.
This is why most companies spend alot on advertisements.
Even much known and established companies like Coca-Cola and Indomie noodles still do adverts!.
Now, what do we mean by Penetration/ high Market share?
This is a pricing technique in which you lower the price of your goods so as to make your products get known to alot of people.
This tactic is used not only in stealing competitors customers, but to make your products popular.
(sorry for using the word stealing, we’re not thieves )
So, In this strategy, you won’t make profit in the beginning, obviously. Your main intention is to grab customers.
This will then result in what we call “Network Effect”.
What is Network effect?
This is when the value of a product increases due to high demand and high popularity.
This is logical.
Your worth depends on how popular you are.
Take for instance: To invite a comedian like BasketMouth, Bovi or A.Y to your event, it will cost more than to invite a local comedian.
This is simply because BasketMouth, Bovi or A.Y are more popular. This doesn’t mean they are the most funny and entertaining comedians in Nigeria. but because they are already known!.
You grab? Ok..let’s continue!.
When you notice that you have customers,you can slightly start increasing the cost of your products.
Remember, I said SLIGHTLY.
increasing the price rapidly will make customers run away instantly.
As you increase your price slowly ,you will NOT lose customers. especially trusted ones.
4. Competitive pricing strategy
Business is all about competition.
But please make this a healthy one.
In competitive strategy, A trader or marketer focuses on competitors selling the same product.
To have an edge over your competitors,you place your price of product slightly lower.
Another way this technique, is in investment.
Have you seen a scenario where a product like an artwork is displayed for sale in a particular occasion.
Then an investor gets up and announces that he will pay “1 million naira” for that product.
Another investor stands up and says he’ll pay “1.5 million naira” for that product.
and it goes on like that..
This is also competitive pricing
5. Value-added pricing strategy
As the name implies, you add value to your product then equally add value to the price you sell it.
So, How can you add value?
You can add values to your product in different ways depending on the kind of product.
- Rendering delivery services
Whether you sell products(edible and non-edible) or you have a dry cleaning shop. You can add delivery service to your customers options.
This will not only make you a known brand but make you earn more when they pay delivery fees.
- less quanity- Same quality
You can also reduce the quanity, and the price but ensure that the quality doesn’t drop.
For instance: If your competitors are selling shawarma at N1500.
Why not reduce the size and sell for Half the price?
This simply means ,the buyer can return the product back if he finds a fault in it within a stipulated time, usually 24hours.
Definitely not for products like foodstuff though.
This brings the added trust in your clients
Receipt, as we all know is the evidence of payment.
Recently, I choose to buy mobile phone from a particular seller??
Why did I do that?
Because he was the only one that could give me a receipt for payment.
This is added Value.
6. Using Psychology
This technique is wide.
it can be in different ways.
Most people would rather buy a product that’s costs N390 than to buy a product that costs N400.
Most people concentrate on the first fire of the price, even tho it’s just N10 difference.
It looks like it is so much cheaper.
According to a research I made, a product in United States of America, when sold for $12 had just 1000 sales.
But when the price reduced slightly to $11.99 ,it had more than 10,000 sales .
You can imagine, low reduction and large effect.
In conclusion, Having an effective pricing might be that extra touch needed to take your business to another level.
With this detailed guide ,you should be able to set the right price for your goods and services.
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