Product Pricing Advice

How To Price Your Products

There are several factors to consider in setting your price, whether you are a service or project-oriented business or a more traditional manufacturer, distributor, or retailer. We will describe the six most critical factors in some detail. They are: (1) return on investment, (2) pricing policies of others in the field, (3) marketing strategy, (4) desired customers, (5) seasonal nature of sales, and, (6) type of product or service.

1. Return on Investment: Sometimes you may simply base your price on the amount of profit you want to make. This is especially likely if you are a manufacturer or distributor and you expect to sell several thousand of a particular product in a given period of time.

2. Pricing Policies of Others in the Field: If other businesses carry products of a similar quality or type, you must be aware of their prices and be prepared to explain to your customers why you charge a different price, whether it is higher or lower.

3. Marketing Strategy: If you dearly tell your customers what makes your products different, and that difference includes price, you can sometimes create a market niche with the price you charge. You may choose to do this as a part of an overall market strategy. The simplest example is of a business that sets prices and offers quality in a range not served by others in the field. Again, this niche can offer products at either a higher or a lower price.

4. Desired Customers: All other factors being accounted for, you will attract more affluent customers if you charge a higher price. A lower price will attract more price-conscious shoppers.

5. Seasonal Nature of Sales: If you typically have good and bad times during the year, you might set your prices higher during the up times to compensate for the fact that you must lower your prices during the down times, to stimulate sales.

6. Type of Product or Service: The type of product you sell can also influence pricing. Convenience stores, such as neighborhood grocers or national chains like 7-Eleven, can charge more for the items you might otherwise buy in a supermarket, simply because they are open late at night or are located nearby. Special-interest stores generally charge more for a given item than does a department store. Many of the services or products that a one-person business might offer could easily be priced by the convenience or special-interest value that they offer.