Setting the right price for a product is a challenge for most companies. Of course, you can calculate a price based on production costs and the targeted profit margin - but whether you can also sell the product is questionable. Because other factors and the general market situation also play a role here: How generous are the customers? How high is the demand? And what is the competition doing? This article explains how you can take these factors into account using various pricing strategies.
Price strategies are considered to be pricing considerations that not only include production costs. Instead, the general market situation, customers' purchasing power and the desired image of the product are also taken into account.
Price differentiation
The price differentiation is characterized by the fact that different prices apply depending on the buyer or purchase circumstances .
- Individual differentiation.
- Regional differentiat.
- Temporal / seasonal differentiation.
- Use-related differentiation.
Quantitative or quantitative differentiation
This is about the classic volume discount : if you buy a lot, you pay less. Wholesale, among other things, works according to this principle.
Target costing
With this approach, it is not the production costs that determine the price, but the targeted price determines the production costs. From the purchasing power and willingness to pay of the individual target group, it is derived how expensive a product can be in order to be attractive. Product development is adapted to this requirement.
Pricing is a complex matter because it depends on many more factors than just production costs. Of course, the manufacture of a product must be financially worthwhile, but the targeted position in the market, the purchasing power of customers and the prices of competitors also play a decisive role. Make it clear to yourself that the pricing of your offer is not just an arithmetic game of costs and profits, but a valuable strategic tool that should be used wisely.
Importance of pricing
Many companies primarily look at costs and leave the potential in pricing unused. There is, however, a good reason for this: the sales volume definitely depends on the price, so that the ostensibly simple formula is more complex than it initially appears.
Low price sells a lot, high price sells little
Take a look at your own buying and consumption behavior: In most cases, you are likely to buy more of a product when the price is low. Or you shop where the price is particularly cheap. This applies to many products! We do not want to go into more detail at this point about markets that function according to other mechanisms - for example the art market.
The price is an indicator of quality
If you go to the butcher who gets his meat from regional farms, you pay more for it than for meat from the discounter. The discounter advertises with its low prices, the butcher with the origin of his goods. For entrepreneurs, the following applies: If you position yourself as a premium provider, the price must not be your selling point.
There is not just one price
A product. A price. That's how you imagine it. But there is also potential in differentiated pricing: you know it from the cinema - the less frequented Monday and Tuesday become “cinema day” and admission costs a third less than on the weekend. This means that capacities are used at times when little turnover would otherwise be made.
And: Since the prices for popcorn and cola are not reduced, the actual price reduction is significantly less than the reduction of a third of the price of the admission ticket.
There can only be one price leader
There is room in the market for exactly one company that offers the lowest prices. It often has economies of scale that allow it to take on this role. Usually messing with this company is ruinous.
It is better to look for what your customers are willing to pay for: Your product may then appear more expensive at first glance, but it will become valuable for your customers through additional services (" Value Added Marketing "). The local dealer for white goods (washing machines, dishwashers, etc.) can hold their own in the market, although some of their devices are 20 percent more expensive than in the electrical wholesale market. Its advantage: it delivers and installs free of charge and takes the old devices with you right away.
