Know-How Exchange : Branding

I worked for a business (i dare say industry) that learn the hard way how to price a product.

First you need to fully understand how much it costs you to deploy or deliver the product. FULLY means FULLY, work through the typical orders you might get and work out the manpower costs (these can be significant for complex orders), you should already know how much it has cost you to get the product, either to develop or buy in.

Add the two together.

Then add a margin (depends on your product on how much margin you expect to make).

Then see of the market will stand that price. What do competitors price there products at etc ?

If there is a difference, do back to your supply chain, or internal processes and see if costs can be cut somewhere!

Think about psycological pricing points ... these end in "99".

Hope that helps

Rob is right on-track. The driving consideration in pricing is value to the customer. If it's not a good value, they're not going to buy.

And if you're not making money, you're not going to be around very long.

So you need to deliver a good value at a price that your customers will find attractive.

Pricing is very much an art. There are formulas and articles that deal with different approaches, but the best pricing strategies are so intertwined with the total marketing strategy and the business plan that you really need to consider each case on its own. No simple "rules" that apply to every product and every industry.

Check out the MarketingProfs tutorial page for some great material. It includes three articles on PRICING.

Well, as most suggested, one of the hardest things would be pricing a product because it does not only shoulder your actual expenses.

For reference you can never start production of a product before you make a full strategic plan to set a price. The price should be built based on competitive products in the market already as well as your target audiences buying power.

But since I assume you have already worked on the production of a product and haven't yet priced it, we'd have to move forward from there. First and utmost essential factor are your assets (i.e. machinery, equipment e.t.c) you'd have to calculate your assets against your depreciation factor. Then you have your manpower, what you'd need to do is build a rate card for each individual class you have working on the product. You can't use the actually incomes, it would make you on the line.

Lets take an example. If you had 3 individuals working, the first with a $100 salary monthly the second with a $200 monthly salary and third with a $300 mothly salary.
You'd place a rate for each individual / day e.g. the individual that takes $100 monthly could be rated at $20 / day depending on his/her effeciency and output... and so on even though he/she were paid less.

Then you have to well structure your target audience and see which class you're specifically targeting to insure the product would be affordable.

That then takes you to the direct competitor products in the market. Make sure you have a list of all products and their prices against their market share, to know who's doing what where.

You have main 2 different strategies in selling against price:
- The Low Trailer Price Rule
- The High Boost Price Rule

The low trailer price rule is based on achieve maximum market shares by killing your profits to the minimal and having a minimal budget on marketing expenses. Thus making high profits against a large market share.

The high boost price rule is based on achieving minimum market shares by increase your price to a maximum possible and having a high budget on marketing expenses. Thus making high profits against high profit margins and not market share.

A typical example in the pharma industry would be Avandia & Glucophage both Diabetes medications in the same class and exact components but a huge price difference .. units sold Glucophage is much higher but profits Avandia is much higher.

Well there are a lot of other factors as well that you might need to consider... but make sure you play your cards right and remember there no success in any product if it ain't supported by a decent marketing campaign.

Just for tips check out the following website:

https://www.how-to-price.com/
It might help although it's not 100% complete.

Cheers and best of luck.

hi there

great response from experts. Sureet has covered the entire gamut of the pricing mechanism. my 2 cents are...

your pricing strategies should first include the cost components, how much the total cost of production for each unit.

you are supposed to add a profit margin/mark-up over your cost to come to a price. In determining the margin i suggest you to look first into the the product proposition, the positioning and the value proposition of your product/brand. based on those you decide the margin to come up with the pricing.

another factor to remember in determining the pricing strategy is the method of distribution of your brand. every tier of your distribution channel has to be given some profit margin, so you have take into account that to come up with your end price or MRP.

hope this helps.

cheers!!

Your ability to set price will depend on the uniqueness of your offering. If you are selling bushels of wheat, the market will set your price, despite the great advice above.

One factor I would strongly weight is the prospect and buyer's perception of your price. Most firms I have worked for (other than in government bid situations) like to price their products just a bit higher than the competition (especially when we have a competitive advantage) and sell the relative benefits.