Pricing is not about picking a random number. It is a strategic decision that could make or break it. Whether you are a start-up or an established business, every time you run intensive research to set the right prices for your products and services. Ideal pricing is what allows you to cover the cost of your business by offering a justified value. It can be difficult to strike a balance between a competitive price and the value that your product or service delivers to you.
Most entrepreneurs think that if they charge higher prices than their competitors, they will lose their customers, and if they charge lower, they will be able to increase their customer base faster. Unfortunately, both strategies will never work in your favour. The prices depend on the quality of your products or services. For instance, iPhones are more expensive than Androids, and yet many people have strong predilections for the former.
Pitfalls you should avoid while setting the right pricing strategy
Customers solicit top-notch products, and they do not mind paying higher prices in exchange for the value. This blog discusses some mistakes that you make while setting prices for your products and services.
Under-pricing
It is no wonder that many entrepreneurs decide to sell their products and services at lower prices in order to gain a competitive edge. It is quite understandable that this will help you attract more customers, but soon, under-pricing becomes the race to the bottom. Companies end up compromising the quality and value of their products in order to sell them at lower prices to increase their customer base. Unfortunately, this will have far-reaching consequences.
Setting prices too low or slightly lower than your competitors will take a toll on your profits. You will find it hard to cover the cost of your business. In the beginning, you might not realise that your business cash flow is disrupted because of your wrong pricing strategy, as you can take out business loans in Ireland.
Further, too low prices will also send a wrong signal about the quality of your products. It is normally presumed that such products are shoddy and are not worth buying. Therefore, they must be avoided. While you try to keep your prices lower to attract most of your customers, you will end up losing your customers to your competitors.
For instance, if you are running a café and you have imported coffee to offer. If you offer very low prices, people will likely assume that you are fooling them. Therefore, you should set the prices according to the value you offer. This will help you win the trust of your customers.
Ways to avoid this pitfall:
- First off, you should research the market. It is vital to know what your competitors are charging, but you do not need to copy them. You should set the prices after taking into account the cost, your target market, and the value your product provides.
- Price cutting is not the best move to attract your customers. You should instead propagate how your brand is different from your competitors and how it improves your customers’ lives better. Unless your customers know the story about your product, they will not understand that it is better than your competitors.
- Experimenting is the best technique. You should set different prices from time to time and see when you manage to sell your products in a large quantity. This will help you know how much your customers are sensitive to the pricing strategy you have set.
Overpricing
While under-pricing affects your profitability, overpricing can also. When your business fails to make enough profits, you might decide to raise the prices of your products. This is not the right move if you want to prevent your business from its bad effects in the long run. Charging high prices is not a bad idea unless you are providing justified value. High prices without offering significant value will dissuade your customers. They will likely find that they are not receiving the quality worth the price they are offering. As a result, you will be left with unsold inventory and lose your money.
Never assume that high prices acknowledge high quality. Customers cannot be easily coaxed into buying an item carrying high prices. They acutely determine if the product or service they are paying for is worth high quality. If it does not seem to be more bang for the buck, they will quickly leave you and move to your competitors.
So, in brief, you should have the knowledge of what your customers want and their paying capacity. Make sure that you provide something unique that makes their lives better and more convenient.
For instance, if you create a budgeting app that has some unique features that other apps do not have, you will have to spread the word. Unless people are told the specialty of your product, they will not feel comfortable paying higher prices for the app. Instead, they will look for more affordable alternatives.
Here is how to avoid this pitfall:
- Do market research to understand how much your target audience feels inclined to pay. If your customers are too price-sensitive, it is not a good idea to charge high prices.
- Make sure that your target audience clearly understands what sets your products apart from your competitors. Highlight its benefits so users can understand why your product is expensive.
- Do not forget to take feedback from your customers. Periodic feedback would help you know how your customers feel about your products and services. This will help you make your brand work in a much better way.
Setting the same price across all channels
Nowadays products are not only sold at stores. Both online and offline presence are mandatory. You should ensure that your customers are making purchases using both platforms. It is important to keep in mind that the ultimate goal of the business is to maximise revenues, and therefore, prices across all platforms should not be the same. While you might think that prices should not vary by platform, it is vital to attract a large number of customers. Different prices are recommended because the cost of managing your business across platforms varies. Further, they are required to meet the expectations of each customer.
For instance, online shoppers might be more price-sensitive. They shop online in order to buy products at reduced prices. You will miss them if you sell your products at store prices.
Ways to avoid it:
- Pricing strategy should tailor to the channel or platform. Understand the needs and willing to pay of your customers and then decide on the right price. Make sure that the price you choose covers your costs.
- Be flexible. For instance, clothing stores after a number of pieces sold-out lower prices further to speed up the sales. You can use this technique to clear your inventory.
The bottom line
Setting the price strategy could be challenging and daunting, but thankfully, there are certain ways to ensure that you charge your customers the right price. You should check your competitors’ prices but do not copy them blindly. Research the market to know how much your customers are willing to pay and what value your products are offering.
