Don’t just think of the price of your product based on cost. In deciding how much to charge for your product, you need to think a little more than just calculate your costs and add a profit margin. The price the customer is willing to pay for the product has very little to do with the cost and a lot to do with the value they place on the product or service they buy. Finding out how much the customer appreciates your product or service in order to price it accordingly is a technique called value-based pricing, and it is one that more entrepreneurs should use.
Five Common Pricing Strategies
Pricing a product is one of the most important aspects of an industrial B2B marketing strategy. Generally, you should rely on the five strategies below:
• Pricing by markup – it’s just a matter of calculating your costs and adding a profit margin to it
• Free competitive pricing – pricing based on competitors
• Value-based pricing – pricing based on what your product is worth in the eyes of customers
• Set a skimming price – set a high price, then lower it as the market changes
• Pricing for the purpose of market penetration – setting a lower price in order to increase it later.
How to determine the price according to the value?
Choose a product that is comparable to yours and see what customers pay to buy it. Find all the features that differentiate your product from the comparable product. Put a financial value on all of these differences, add everything that is positive about your product and subtract the negative aspects to come up with a potential price.Make sure that the value in the eyes of the customer is greater than your costs. Show customers why the price is acceptable, including talking to them. If there is an established market, the current price range will help you understand customer price expectations. You still have to make sure that the value in the eyes of the customer is greater than your costs. Otherwise, you will lose money every time you sell a product.
For which industries is value pricing appropriated?
Value-based pricing works best for companies whose products stand out. Unfortunately, a lot of entrepreneurs and companies often price based on costs because « it’s easier » . They can also copy the prices of their competitors, which is a slightly better strategy, but not ideal. In a perfect world, all entrepreneurs should determine their prices based on value. But entrepreneurs who sell a basic product or service, such as warehousing or all-white t-shirts, have more opportunities to outperform their competitors with low costs and prices. But for entrepreneurs who offer something that stands out in the market – for example, a handcrafted product, a high-tech product or unique services – determining the price according to the value will precisely make it possible to better convey the idea of the value of the product.
The price should match your target market. In summary, pricing is one of the most important aspects of your marketing strategy, which also includes promotion, placement (or distribution), and people. When considering your price, it is important to realize that it is not for you, but for your target customers
All pricing strategies are a double-edged sword. What attracts some customers turns away others. You can’t please everyone. But remember, you want the customer to buy your product. This is the reason why you need to use a strategy that is right for your target market.