How should you price your products?

Indian consumers are a price-conscious lot. Period. So when you think of pricing your products, you may want to ensure your prices are such that your target audience does not equate them to burning a hole in their pockets.

General steps to follow in setting product prices

Set the pricing objective

• • This is one of the most important steps.
  • Setting a low price might attract more customers and fetch a larger market share for the product while a higher product price may reflect on the quality of the product.

Decide the demand for the product

• • The demand for the product on all marketplaces is a factor that sets a ‘ceiling price’.
  • Make use of “penetration pricing” strategy when the product has a highly elastic demand and there is strong competition for the product in the market.
  • This policy is generally followed during the initial stages of introduction of a new product.
  • Under this policy, prices are fixed below the competitive level in order to obtain a larger share of the market. Once the product is in demand or is accepted in the market, the price can be increased.
  • But when the demand for the product with respect to price is more inelastic, higher prices are charged for the product.

Estimate costs and profits

• • The amount spent and expected return is a key factor in deciding the price.
  • The various costs involved in producing the product must be covered in pricing the product.

Identify competitors

• • All possible competitors for the product and the policies they follow are important factors.
  • If a case arises where the product is similar to the products sold by competitors, using competitive pricing is the best option.

Selecting a suitable pricing method/policy

Pricing research and adopting test-marketing techniques are used to determine the right price for products. The various pricing methods are:

Perceived value pricing

• • A pricing policy in which a price is set in relation to the value perceived by the customer.
  • Such a perceived value depends on several factors like the customers’ image of the product’s performance, warranty, trustworthiness, esteem, etc.
  • Each customer gives different precedence to these factors. Some buyers may be price buyers or value buyers or even loyal buyers.
  • The company’s potential profits may depend on whether the price is higher or lower than the value perceived.

Value pricing

• • A policy in which companies develop brand loyalty by charging a fairly low price for a high-quality product.

Going rate pricing

• • A pricing policy followed by companies by setting the price as same as, more or less, than the major competitor’s price.

Premium pricing

• • A policy that can be applied when a product is innovative and the competition for it is low or non-existent, thus optimizing profits.
  • However, prices are lowered when competition arises for the mentioned product.

Ethical pricing

• • A fixed price is kept, keeping the welfare of the society in mind.
  • The product is sold at the lowest possible price with either a very reasonable margin or no profit at all.
  • This particular policy is used for many life-saving drugs.

Full Line pricing

• • It is a policy that retailers use to categorize goods based on cost creating different quality levels in the customer’s mind.
  • Product line pricing is more effective when there are ample price gaps between each product category so that the consumer is well informed of the quality differentials.