What dictates the price of your product or service? How did you calculate it? Is it determined by the market value? Pricing provides the buffer between your business being a success, and failing due to expenses. The price of your product is what determines this. The bigger the buffer, the easier you can ride out the tough times.

Cost to Produce

Ok, so from a simplistic perspective, you need to sell your product at minimum, at a price that pays for its production (i.e. labour, materials, overhead). This is the very minimum you could operate your business, however, with this strategy, you are constantly walking the line between operating and failure. With such small margins, you are vulnerable to failure with a small change such as a supplier delay, economic slump, inflation or even a raise in lease costs. 

Pricing is the center of business success. You have to be competitive but you also have to generate profits, enough profits to remain competitive and expand. Chagrin more for a single product means you can invest more in the product in order to make it superior. So, can you charge more than a competitor and still retain the same market share? The answer is yes!

A Proper Comparison

Although there is truth in the saying that the market sets the price, what you need to remember is that there is more than one market. The market is also determined by quality. A premium product can be seen as a premium product and hence worth the extra money. All you need to do is look at the range of prices within a particular category and you realize that people are willing to pay more for a better product whether that means aesthetics, reliability, friendliness, warranty, image, ethics etc. Different people see different levels of value in products and services. So, when comparing yourself to your competition, remember to compare yourself to a comparable product of equal ‘quality’.

Customer insights

As with every business plan, a market evaluation is the key to understanding your potential customer base. In this case, you could survey the market and find out their willingness to pay a premium price for higher quality/service. Can they see the added benefit of paying for your product over an inferior product for less? Is that value beneficial/desirable to them?

Market Race

Does the market already have a premium product like yours that is well known? 

If so, you may need to charge less than this established brand at least initially assuming you are of equal or higher quality. If there is a perceivable difference, this is something you can focus on in your marketing strategy. Equal or higher quality for a lower price is a great way to compete with the already established brand and gain market share of competitors. 

Low-High Pricing Strategy

Low-high pricing is a common strategy that can be implemented in marketing campaigns in order to attract customers to your location or website with products that are low cost, high value and potentially upsell the customers products with higher markup to earn larger profits and gain loyal customers. Not only that, it helps spread your brand as familiar to those who may not know you. 

Sell Value

If your products are of equal or higher price to your competitors, you need to be able to sell their value as cost-efficient e.g. cost more initially, but lasts longer, does more work, looks better, has more function etc. Premium products frequently sell their value. A simple example of dish soap that costs 20% more but cleans 50% more dishes is an example of selling the quality/value of the product. Gas that helps your car run better requiring less maintenance at a cost of a few extra cents per liter is another example. 

Value comes in many forms, 10 tree Canada is an example of ethical value where they plant trees based on sales for a healthier environment. Toms works on a one for one operation where every pair sold results in a pair being donated to a child in need through humanitarian organizations. These companies are just a few of the many companies offering the sale of value through environmental, humanitarian or ethical products. These products have cheaper alternatives but without the value added premium. 

Other values to consider are handmade, locally made, made from materials sourced within the country, not tested on animals, lifetime warranty or environmentally friendly.

Limited Market Lifetime

Competition means that if your product is unique and cannot be patented, it is likely to be copied soon. You only have a limited time to establish yourself as a premium brand before the market gets copies of lesser quality at which time you still need to either demonstrate superiority or cut prices to compete. If quality in materials or construction does not apply to your product/service, you need to have another angle for added value such as those mentioned above. 

Price is Key

Pricing of products is more flexible than you might think. Having the cheapest product on the market doesn’t guarantee you the most sales. Remember, many people firmly believe the ‘you get what you pay for’ approach to purchases. For your product or service, use your survey data and knowledge of the market to determine if you can charge more for your business’ products/services than your competitors. If you think you can, make sure the benefits are clear!