Academically, pricing is the amount of money charged for a product or service or the sum of the value that consumers exchange for the benefit of having or using the product or service.
Once you have developed your offering you are now in a position to make pricing decisions. Pricing is a very important element within your marketing strategy as it not only generates revenue and supports other activities like product distribution, promotion and advertising, it will be a large determining factor in where your product is positioned in the market place.
When setting your pricing, it is important to think about the message you want to tell your consumers and the perceived value of your offering. High pricing is generally reflective of a high-quality offering. Low pricing logically then indicates that you are a low-cost provider. Neither is right or wrong, it is simply a strategic decision that needs to be made in conjunction with what price the market will bear.
So ask yourself – where does your product or service’s pricing sit in the market? Why have you adopted this strategy?
There are a number of factors that will affect your pricing strategy, these include:
Costs
When setting your pricing, you should consider both fixed and variable costs and margin expectations.
Consumers
We have already discussed positioning; however, we also need to consider your target market expectations of pricing to understand what the market will be willing to pay. Keep in mind the consumer’s purchasing power and price sensitivity for your offering.
Product Life Cycle
Different stages of a product life cycle can affect pricing decisions.
Competitors
Your business needs to understand the level of competition in the marketplace and their pricing.
Economic Conditions
Economic factors including unemployment rates, interest rates, inflation, and other economic situations can affect consumer’s price perceptions or ability to purchase.
Traditionally, the price has been an important factor in consumer choice. More recently there has been a shift in buyer behaviour with non-price factors also playing a role in the consumer’s decision to purchase.
Price is the only element in the marketing mix that generates revenue for the organisation. Similarly, price is the most flexible element within a marketing strategy as it can be changed very quickly, supporting the organisation’s ability to respond to market changes should they be required.
The foundation of a successful pricing strategy starts with a detailed understanding of your organisation’s costs, required returns, and desired positioning. Remember, pricing can be changed quickly, so tweaks can be made along the way should you not get it right the first time. However, at Purple Giraffe we like to start how we want to finish, so we encourage you to think deeply about your pricing strategy for the longer term and not be influenced by the “quick sale”.
