Pricing Your Goods and Services

  


According to the law of demand, the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded. Obviously, price has a direct relationship with demand of products and services. One of the key factors buyers consider in their buying decision is the price. There is a link between the price of a product and its value. Buyers expect products sold at a premium to be of high quality and vice versa.

The price determines the profit margin a business earns. So, it is very important for businesses to set the right prices for their products and services. Business owners must figure out the price that would attract customers and bring decent margin at the same time. The business is at risk of losing customers if the price is too high, however, a low price could erode the business’ profit margins. The goal is to find the right price point that maximizes sales and profit.

There are several pricing strategies depending on what the business seeks to achieve. Generally, the price build up should include the cost of the product, overhead cost and profit margin.

1.       Premium pricing

This refers to the pricing of products at a higher price compared to competitors. Luxurious products and services are priced at a premium because of their unique features and offering. These products are sometimes customized to suit specific needs of customers. These products and services are extraordinary and sophisticated, hence the reason they carry high price tags. Such products are targeted at affluent customers, who want to build high prestige.

 

2.       Penetration pricing

It is designed to capture market share by entering the market with a low price as compared to the competition. The penetration pricing strategy is used in order to attract more customers and to make the customer switch from current brands existing in the market. The main target group is price sensitive customers. Once a market share is captured, the prices are increased by the company.

 

3.       Price Skimming

Skimming is a type of pricing used by companies that have a significant competitive advantage and which can gain maximum revenue advantage before other competitors begin offering similar products or substitutes. It can be the case for innovative electronics entering the marketing before the products are copied by close competitors.

4.       Captive Product Pricing

It is a type of pricing which focuses on captive products accompanying the core products. For example, the ink for a printer is a captive product where the core product is the printer. When employing this strategy companies usually put a higher price on the captive products resulting in increased revenue margins, than on the core product.

 

 

 

















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