Price strategy is an essential element in the marketing process. Price your product too low and you won’t earn a profit. Conversely, if you price goods and services too high no one will purchase them. The key is to research all available pricing strategies and select the best one for your particular situation. With proper diligence, you can identify the appropriate price strategy to achieve the maximum profit potential for each individual product or service.
Examine all factors that may impact the development of your marketing strategy. This requires an assessment of a variety of factors, including an analysis of the market, as well as an analysis of your brand’s positioning within the market. You should also identify your target market and record all of this information in writing for future reference.
Determine the appropriate marketing mix for your specific product or service. This consists of defining exactly what your product or service is, developing a distribution plan, and deciding how you intend to make your products and services known to the target market. For example, it is essential to determine whether you want your product to be perceived by consumers as a necessity or a luxury item. You should also determine whether your goal is to sell a product or service which will be used by a vast number of consumers, or if you would prefer to sell to only a select market. Each of these factors will have a significant impact on your final pricing strategy.
Estimate the demand curve. Demand curve is defined as “the relationship between the price of the good and the amount or quantity the consumer is willing and able to purchase in a specified time period, given constant levels of the other determinants,” according to the UNO Center for Economic Education. In other words, you must determine how likely the average customer within your target market is to purchase your specific product at a given price. This is typically accomplished through the use of an equation in which quantity = a - (b x price).
Calculate the costs associated with manufacturing and distributing your product. This includes the cost of labor and overhead, as well as both the fixed and variable costs associated with manufacturing your product.
Evaluate external factors which may impact your ability to sell your goods or services. The PEST analysis, which examines political, economic, social and technological factors that impact your organization, is a useful tool for evaluating these factors. These may include such factors as competitors’ pricing strategies and various legal restrictions.
Identify your specific pricing objective. In other words, articulate a specific goal for your pricing strategy. For example, your goal may be to offer your products at either a premium or an economy price. Or, you may wish to simply offer better services at the same price as your competitors.
Analyze all the information that you have gathered. Use this information to develop an appropriate price strategy for your specific product or service. Additional elements of the price strategy to consider include your price structure as well as strategies for offering discounts.