Pricing for success – determining your strategy
Pricing is an essential component of your marketing strategy. Marketability of the prices you set is key. Think airline tickets (particularly business and first class), luxury cars, clothing and handbag brands, even supermarkets. The same is true in the service sector. Fees for lawyers, architects and designers, for example, can vary immensely.
Many business owners struggle to set prices, often looking to competition as a guide. It’s the wrong starting point. Whilst most sectors and industries have parameters, ultimately the price your clients are prepared to pay will be governed by the value they perceive you to be adding. For instance, if you’re including design work or project management with your product or service, it has a value. Conversely, if your pricing is too ambitious, it will reflect in your sales performance.
Whilst cost is not necessarily the determining factor, you do need to understand what it is and how it’s made up. Typically, new technology will command a premium, but prices will reduce over time. Some producers or distributors may offer discounts on volume or total spend. You may elect to set higher prices than your competitors, using your marketing to shape your customer’s idea of value.
Your pricing strategy also affects your break-even timeline. Construction companies and high-end suppliers often apply a significant mark-up to variations and additions, resulting in higher gross profit.