Price strategy and knowing how to price a product so that it’s an attractive price-point for your customers while also turning a profit for your business is a significant challenge.
Creating the right price strategy leads to both short-term, and more importantly, long-term success for your company. But get that price strategy wrong and it may be a mistake from which you can’t recover.
Part art and part science, it’s one of the most difficult elements to get right in your marketing and business plan. But with some careful thought and planning, you can find a price strategy that’s right for both your customers and your business.
Get to know your customers
Who is your primary target audience and what are their wants and needs? You should do some sort of market research, whether it’s an informal survey of your current customer base, or hiring a market research firm to conduct the research on your behalf.
Generally, market researchers believe there are three primary types of customers:
- Budget conscious
- Those looking for convenience
- Status oriented
Once you figure out the type of customer you want to attract, you can develop a price strategy to target that audience.
What are your costs?
In order to turn a profit, you must first cover the costs associated with running your business and producing your products. Those costs also include the overhead costs of running your business, such as rent, operating expenses, and product costs, including labor and marketing expenses.
Create a spreadsheet that includes all of the costs that need to be covered each month so that you can determine how much money you need to generate to cover these costs and create a revenue target.
Market trends
Look to the future and observe and research the market trends for your particular industry, be that screen printing, fabrics, or some other market. Will your costs go up or down three or six months from now? What factors will play into these trends – weather, a natural disaster, the labor supply?
By looking to the future, you can predict where your costs will go and factor them into your current pricing strategy which can help avoid a large drop in revenue down the road.
Keep an eye on the competition
As with many other factors in business, it’s wise to keep abreast of what your direct competition is up to, and this includes their pricing strategy. Knowing what the comp is doing can help you gauge how much you should charge for comparable goods.
Underpricing & Overpricing
Wholesalers are susceptible to two main mistakes when it comes to how to price a product – underpricing and overpricing. Both can be detrimental to the business in their own unique ways.
The downside of underpricing your goods is that it can make your customers perceive your product as “cheap” and of inferior quality. Businesses sometimes underprice their product thinking that by doing so, they’ll drive up sales volume and increase revenue. This is often not the case.
You also need to ensure you cover your business expenses, otherwise you’re in essence giving away your products, which is devastating to the long-term health of your company.
Conversely, if you charge too much for your goods and services, customers are likely to look elsewhere for a better bargain. Often times, wholesalers charge too much for their product initially because they believe they need to recover all of their business costs at once. Doing this can mean your business never gets off the ground, and is once again bad for the long-term health of your company.
How to price a product is a complicated and difficult question. To do so effectively, follow the guidelines listed above, but also remember that the process is ongoing and must be constantly re-evaluated as market trends change.
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