Product Pricing
Pricing is a subject about which everyone has an opinion. The customer says it is expensive; the salesperson says it would sell better at a lower price; the finance manager says we make no profit at this price; and the competitor keeps our minds occupied with their own figures.
But pricing is not simply assigning a number to a product. Price is a message. It tells the customer our positioning, the value we offer, and the level of quality, service and trust we represent.
A low price is not always an advantage
Many people assume that selling more cheaply will necessarily mean selling more. That may be true in some markets at some times, but not always.
A low price can attract unsuitable customers, destroy margins, reduce our ability to provide support, and even suggest to customers that the product lacks the necessary quality.
If our only advantage is a low price, all it takes is a competitor who sells more cheaply. Our advantage then disappears.
A high price cannot be justified by slogans either
Conversely, a high price cannot be justified by claims alone. If we want to charge more, greater value must be visible: better quality, a better experience, greater speed, more trust, more expertise, or reduced risk for the customer.
Customers are not expected to accept a higher price merely because we worked hard. They must understand what they receive that is worth paying for.
Calculate the real cost
Pricing must consider the real cost. Raw materials or production time alone are not enough. Sales, support, returns, training, transport, taxes, discounts, capital tied up and even possible errors must also be taken into account.
A product often appears profitable, but once we calculate all its costs, we find that the actual profit is either very small or nonexistent.
Watch competitors without becoming captive to them
Reviewing competitors' prices is necessary, but imitation-based pricing is dangerous. A competitor may have a different cost structure, more capital, a promotional objective, different quality or another revenue model.
If we look only at the competitor's number, we may enter a game that was not designed for us.
Questions to ask before setting a price
- Who exactly is our customer, and how much are they willing to pay to solve the problem?
- What is the product's real value to the customer?
- What is the full cost of providing the product or service?
- What message does our price send about our brand positioning?
- If sales double, does profit double too, or do costs grow faster?
Conclusion
Pricing is a financial, marketing and strategic decision. The number we choose affects the type of customer, service quality, capacity for growth and even brand image.
Neither selling cheaply is always the road to survival nor charging a high price a sign of professionalism. The right price is one aligned with the business's value, market, costs and positioning.