To effectively manage the company, one should know how the price formation for a product or service occurs, that is, in this case we are talking about the basic pricing methods. An analysis of real value will allow the manager to determine whether an increase in production capacity is required or whether production should be reduced, which direction should be chosen for work, what to invest in, so as not to remain without profit. If the organization has the right pricing policy, the company will be able to achieve the desired goals. Below we consider the main pricing methods that make a business more successful.
Traditional methods
Pricing is the process during which the value of products and services is determined. There are various ways to do this.
This process is preceded by the following steps:
-
factors are found that can affect the price, and they are not dependent on the company;
-
determine the purpose for which the price of a product or service is calculated;
-
choose a method of value formation;
-
develop a strategy by which to determine the price;
- carry out market adjustment of value.
In the field of e-commerce
We know that it can be difficult for you. As a small business e-commerce entrepreneur, you compete with similar companies: Amazon, Ebay and other giant online stores. But sales promotion is not all about who can offer this product at the lowest possible price. Knowing the basics of proven and true pricing strategies, as well as all the intricacies of providing significant value to your consumers, is the cornerstone for creating a successful business model for your online store.
So, let's analyze the basics of pricing strategy. If you are just starting out, the key should be simple.
1. Define your costs and desired margin
That is, you need to know the math well. In order to properly evaluate your products, you must first have a thorough and realistic look at your unit price. The “unit cost” in this case does not apply exclusively to the literal value of only your goods. You will need to include overhead costs, as well as consider the economy: storage of goods, salaries of employees, etc. After you determine the cost of a unit, use a simple calculator margin to determine how to properly evaluate your products to achieve your desired margin, which is the basis of what is called cost-based pricing.
2. Consider competition
Market pricing is a pricing strategy that focuses primarily on market factors. One such factor is competition, as well as market saturation. Is demand for your product currently ahead of supply? If so, you can raise this price. If your product is on the market, who sells it and at what price? Let's say you decide to sell eclipse goggles for the next solar eclipse. You must research the price points of your competitors and evaluate your product competitively.
3. Know your audience and your USP
If you know your audience and that you are making a unique selling proposition, then you have leverage in the world of pricing. It is all about conveying meaning. For example, suppose you decide to target environmentally conscious consumers with eclipse glasses. Because they are environmentally conscious.Most likely, they participate in cosmic events, such as once-in-a-lifetime solar eclipses and the like. And you noticed that your competitors have not yet specifically targeted these consumers. In this case, it may make sense to sell recycled - or at least recyclable - solar eclipse glasses for a slightly higher price margin. Most consumers are willing to pay more for a product if it is in line with their worldview. There are reasons why terms such as Made in the USA and Certified Organic abound in the retail world.
4. Stay on top of common pricing tactics
No need to reinvent the wheel when it comes to pricing your products. Take a look at what the best online stores do and you will have a good idea of what works. Here are some noteworthy pricing ideas.
Price reduction of several rubles. As you know, to increase the conversion rate by almost 100%, charm pricing is the practice of removing cents and rubles from a rounded price point (that is, changing the price tag from 1000 rubles to 999 rubles). Why we, as consumers, continue to be led on this, is unknown. But we do it.
Low fat pricing. This is a common retail practice, in which you introduce a new product at the highest possible price and lower price for a certain period of time. Using this strategy, you focus on two different segments of the audience: early users and status-conscious consumers are more likely to pay the full price for the latest gadget or trend, and a price-sensitive consumer is likely to buy as soon as the product is discounted.
Anchor pricing. In connection with the low-fat pricing described above, anchor pricing is the practice of listing both the starting price point and the selling price point for relaying perceived value.
Selling at a loss. This is an advertising tactic that actually offers a specific product at a loss to attract consumers to your website or store. This strategy has been used by grocery stores for decades.
Price of discounts and stocks: when considering your pricing strategy, a good rule of thumb is that you can consider the possibility that, if necessary, in the future, you can either discount your goods permanently or temporarily, with temporary stocks to move your goods.
In short, don't overdo it. Like the rest of the modern world, you are probably a very experienced customer and intuitively have a pretty good idea of how to evaluate your product after many years of interaction in the retail market.