How do you know how to price your product or service? Your product's price often communicates as much to the consumer as its advertising. People perceive a product's value based on its price in many situations -- it depends on what your product is and who your market is.
Here is an example: An established restaurant that had just started getting fresh seafood daily from the coast (which was about a four-hour drive away) and was charging eight dollars for a typical seafood dinner entree. They couldn't sell it at all. Rather than lower the price or drop it from their menu, they decided to raise the price to $12.95. The fish sold like crazy. The moral of the story is that people are leery of cheap seafood.
The moral for you is: Be wary of super low pricing. Your customers are looking for value, not the cheapest product they can find. Price your product strategically by looking at:
- The competition (or lack of it) your product faces - If your product is one of a kind, particularly if it's in the technology field, then higher initial prices may be more palatable to consumers (and even expected).
- The sensitivity (or insensitivity) of your customers to pricing for your type of product (as in the case of airlines)
- The price elasticity (the lower the price the more you sell and vice versa) - Keep in mind what you have to sell in order to make a profit, and then chart out the variations in prices and quantities to sell in order to pinpoint the right one.
- The value of the product as it relates to the value of the price - People may pay more for a similar product if they think they will get more out of it.
- The positioning you've established for your product
Write the pricing strategy section of your marketing plan and back up your pricing decisions with current data about competitors' prices, price surveys, etc.