Setting the right product price for a particular market is a challenging task. You need to correctly consider a number of factors prevailing in the market before settling for a particular figure.
Product and the price send vital information to customers which influence their final purchase decision. Low price does not necessarily mean more sales while high prices don’t mean low sales.
We're going to look at what you need to consider when pricing your product.
Cost of ProductionCorrect product price should cover total cost incurred in production process. This means that you need to correctly calculate the cost incurred in producing each unit. To arrive at this figure, you need to consider all costs incurred in the production process. These include cost of:
other overhead cost
Sum up all these costs and divide it by total units produced. This will give you a rough estimate of cost incurred in producing each unit. Keep proper records to help you arrive at a more accurate figure.
Competitors’ PriceThis is the price charged by other businesses offering the same product in the market. Competitors’ prices gives you a range which your product price should fall. To make sure you are in the running, keep in mind, most customers will peruse close substitutes and by having your product prominently on a display such as a retail shelf wobbler will get you noticed by the customer before they make a final purchase decision, putting your product in the mix.
Your final price should be competitive to attract customers while depicting correct product value as well. Conduct a thorough market research by visiting different retail outlets and competitors’ website to establish what competitors charge.
Customer BehaviorUnderstanding customer demography will help you set appropriate product price. It indicates what customers value most and their reaction to price changes. Conduct market research to find out more about the target customer behavior on different price patterns. You can do this by simple survey questions, online surveys or during product promotion.
Continue observing the customer behavior through the test price period by asking for their response. You can consider budgeting for an independent market research firm to help you understand more on the customer behavior in a given market.
Revenue Target that you Wish to AchieveYou definitely want to break even and make substantial profits over a given time period. It can be achieved by setting correct profit margins on top of the final cost of production.
Estimate the revenue target over a given time and divide it by the number of units that you expect to sell. This will give you an estimate of revenue that you need to attain and the final product price to help you attain this target.
While estimating the revenue target, you should consider the target percentage in the industry since this varies depending on the type of business.