Finance

What to Consider When Pricing Products

What to Consider When Pricing Products

Establishing an effective pricing strategy for new products is an art. Reaching that delicate balance between consumer demand and product value generally takes a great deal of research and insight especially when trying to price products in a competitive marketplace. Business owners who continually invest in this area will position their businesses to maximize the revenue from their customers and ultimately increase their bottom line. In other words, pricing the products and/or services in a business is a continuous process that should be consistently revisited and reevaluated.

A sound product pricing strategy will involve the following six questions:

What is the Business Selling

A business owner’s first consideration when determining the product pricing is to take a look at the products themselves. Is the business offering a high-end or specialized item, or something more generic? If the price of a high-end or specialized product is set too low compared to competitive products, then customers will perceive that the quality is lower. On the other hand, a standard product that is significantly higher in price compared to those of competitors may drive away customers who feel the product is overpriced.

Who is the Target Market

Who shops at the business, what products and services are they looking for, and what are their spending habits? Since pricing is directly linked to consumer demand, awareness of the current consumer trends is invaluable to running a successful small business.

What is the Competition Doing

In order to properly price a business’ products and services it is essential that the business owner determines what the competition is charging and what the competitor’s customers get for their money in terms of value and service. This information should give the business owner a general price range for the products and services being offered.

What is the Business’ Perceived Value Among Customers

The value of a business’ products is greater than raw materials and labor that was used to create them. Convenience, customer service, free or immediate shipping, location, brand name, and reputation all add to the value of a business’ products and will affect how much a customer is willing to pay for them.

How Should the Salespeople Close a Deal

To encourage consistency and quality performance from the sales force, the business owner in companies like casinos-singapore.com should create price guidelines that contain a target price, price floor and price ceiling, and then only allow deals that fall within this range. Business owners should also consider creating an incentive program that rewards high profit margins over sales volume, since salespeople may try to sell products and services at the lowest possible price in order to close the deal.

What is the State of the Economy

It is very important when pricing products and services that the business owner is in touch with the current economic climate and the level of consumer confidence. This will affect how much consumers are willing to pay for a given product or service. In a downturn, for example, customers may decide that certain products or services are a luxury that they can do without. In such a case, a business owner would either need to change the marketing strategy, reduce the price of the item, or find some way to increase the value of the products and/or services.

In short, proper product pricing strategy involves a bit of know-how and effort but it will reduce costly mistakes down the road.

Effective Software Pricing Strategies

Pricing is critically important as any wrong pricing strategy can spell disaster ever for well-researched software product that has strong applications. It is necessary to price the product right as over-pricing may mean rejection by prospective customers and under-pricing may convey the impression the product is substandard.

Pricing strategy has to take into account manufacturing and marketing costs, distributor commission and reasonable profit margin, market acceptability factor and competition scenario.

Procedure for Pricing

Even at the outset, it must be understood that there is no definite universally acceptable formula for pricing. One can at best think of some broad strategy that can be adopted for software pricing.

As a first step, conduct a market survey to determine how the software will be received and how much price customers be willing to pay.

Decide how the product is going to be positioned, how the distributor network will be organized and what sales promotion techniques will be necessary.

Consult the sales team and retailers to arrive at an estimated sales figure at lease for a year after launch.

Determine the sales price of the software by adding the marketing costs and a reasonable element of profit to the manufacturing cost.

Apply necessary correctives to the sales price after taking into consideration the market acceptability factor, the competition scenario, the demand for the product, distributor/retailer commission, anticipated customer discounts and the projected sales figure.

Software Pricing Strategy

Generally there has to be a launch price – when the software is first introduced into the market – which must be relatively low to attract buyers. Once users are convinced about the effectiveness of the applications of the software and the demand increases, the prices can be revised upwards. This price strategy is important or else buyers may be reluctant to try out new products that are priced high.

The right pricing strategy will be to keep the price deliberately low for the first few months till the software becomes popular and a strong demand is created in the market. The aim should be to fix a price that will cover basic costs and minimal profit margin to capture the market.

A stage will then come when the customers will be willing to buy the software even at a higher price than go without it. That will be the time to revise the prices and exploit the market. The underlying strategy is to look for long-term profits by increasing market demand with low pricing. It is also necessary to find out if similar software is already available in the market and in which case, the pricing has to be extremely competitive.

Software Pricing Problems

If a company chooses to lower the software price due to economic recession or for whatever other reasons, then the company will be hard put to restore the price to normal level when the market condition improves.

Reducing prices can therefore be a bad marketing strategy as companies unwittingly cause devaluation of its software product.

The enterprise software industry, which primarily markets software for large corporations, faces a crisis of the worst sort. Most of these major software buyers have quite often been able to successfully negotiate despicably low prices and the companies agree to such bad deals in an anxiety to retain the customer.

Pricing of packaged software used for smaller applications – is indeed a challenge. It is because this type of software is not bought by many in large numbers, and therefore less customized than enterprise software. The problem arises because the number of such software is huge and of countless varieties and quite complicated. There are a host of different software price points aimed at innumerable market segments, channels and geographic locations.

Today, many software suppliers have altered their pricing format to a subscription model in which the customer subscribes for a year or two. Afterwards, the subscription has to be renewed or the software will cease to work. Many feel this pricing model is fair to both the supplier and the customer since it solves many software pricing problems.

Fixing the software price calls for a balanced approach that should take into account the needs of the suppliers as well as the customers. It must be remembered that the norm is software is purchased as a product where customers make a one-time payment and thereafter own a continuing license to the software.

Therefore, the best way to fix the price of a software is to understand the dynamism of the market, select the best marketing channels and synchronize the marketing and manufacturing costs in such a way that market accepts the product and the product survives the fierce market competition in the long run. This can be only achieved with the help of effective pricing strategies which include overall evaluation of the software product so that it is positioned in the market strongly.

About the author

Sravani Reddy

I'm a breaking news reporter for crazy speed tech focusing on economic policy and capital markets. I completed my master’s degree in business and economic reporting at New York University.

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