When you sell a product online, the pricing decision of the product is among the most important factors that determines how much money you are able to make! But rookie businesses often make the mistake of pricing their products wrong. This article discusses some of the factors you need to consider while pricing your product.
12 of the Top Pricing Decision Mistakes Made By Rookies
Determining your Price based solely on Production Cost: The number one mistake I see people do is to base the price solely on cost involved. Yes, Price must be greater than cost to make a profit.
Determining Price Irrespective of Competition: What is the price of similar products in the market? If your competitor has set a price that is much lower than yours, there are going to be comparisons.
Setting the Price high without Offering a reason: If you are planning to set a high price in such a situation, you have to back it up with proper marketing to place your product as a premium product. This means you have to properly identify your market and target your customer, deliberately display the good qualities, the high grade, the premium feel of your product, the great pleasure from using it, the great returns on money that is way above competition etc. You also have to play to aspirations of your market to be identified with a certain kind of people.
Setting the price without regard to the Market : What price can your market bear? This is quite important to think about as the market has a very weird relationship with pricing. If the pricing is too high, the market will not be able to bear it.
Setting the Price Too Low : Usually rookies start with a low low price in order to drive up volume. But is the price so low that people think it is of low value? In the absence of other variables to determine the value of the product, people tend to depend on the price to gauge quality. Hence low price = Low Value and High Price = High Value.
“Making a Pricing Decision to Price a Product Too Low Can Lead To A Shortage.”
Not Offering Appropriate Payment modes: Is there an installment mode available for payment? Is there deferred payment? This can make higher payments available to your market. Do you accept credit cards? Do you accept cash ?
Not considering a Loss leader: In the online market, especially for Information based products, the use of a loss leader is very common. What the seller does is to price his product at a very small price; considered a throw-away price to gain a customer – and his trust. This tactic is only useful if the customer can then be eventually converted in to a higher paying buyer for subsequent products.
Not basing on Volume Requirements: How many pieces of the product do you need to move before you start making a profit? This might mean setting the price lower to make volume. There are possibly many other such factors that affect pricing.
Forgetting about taxes, charges and other expenses: Rookies fail to realize that there are taxes that need to be paid in terms of sales taxes, income taxes, goods and service tax, value added taxes and many others depending on your locality. All these costs add up – and need to factored in to the pricing.
Not heeding Government Interference: In various markets, depending on your product, there are government regulations that affect your pricing. This is very evident especially in the pharmaceutical field especially life saving drugs.
Not Factoring Effects Of multi-lateral agreements: Occasionally, organizations have multi-lateral agreements with various unions, agencies and other organizations that have to be factored into the pricing in various territories.
Product Pricing Decision For Multiple Products
Offering only one price point: Businesses that offer multiple price points for their products are able to more effectively increase market share and serve more customers. Such businesses offer different products under different brand names to different customers.
Pricing based on Seasons: Some companies offer different pricing based on the seasons, other events etc. For example, hotels, airports, tours and resorts offer different pricing dependent of tourism seasons.
This article mentions only a few of the factors you take into account when you decide on the price of your product. In the end, the right price is one that your target market will happily pay for – and then think that it was a steal. Of course, this is only possible with great marketing!
What do you think of this post? What pricing decision (s) are you using for your products? Is their a formula you use? Let us know in the comments. If you like, it kindly share in your social world.