Using an effective pricing strategy can determine the success and failure of a business. You've managed to find a tantalizing and memorable product for your business so all that's left now is to determine the right price. Learn how to determine expenses, raise and lower prices properly, and take advantage of promotional prices to make a profit, and you can set the most strategic price.
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Part 1 of 3: Determining Expenses
Step 1. Calculate the operating costs of the business
The method of determining the base price requires you to know the total cost of running a business so that the selling price determined does not harm the business. So, first you need to calculate the operating costs of the business. These costs can be divided into direct costs and indirect costs. Calculate:
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Direct cost are costs that are directly related to business operations. These fees are charged directly to the products and services provided.
- Labor costs
- Marketing costs
- Manufacturing costs (cost of raw materials, supplies, etc.)
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Indirect costs are the costs incurred to maintain the continuity of business operations every day. These costs are sometimes thought of as hidden costs or even “real costs” of running a business.
- Operating expenses (including building rent, utilities such as electricity and water expenses, etc.).
- Debt repayment costs
- Return on investment
- Cleaning and office supplies
- Your salary
Step 2. Determine the "point of success"
The only reason to start a business is to make a profit, and specifically to make enough money to keep the business successful. Therefore, you need to set a success point, which is a point at which the business can be considered a success, and add that number to expenses to determine how much revenue you need to generate from sales.
- Now that you know how much money it takes to be successful, you can start figuring out the right price for the product.
- It can take years to dominate your market.
Step 3. Anticipate customer desires
Another main thing to determine is the number of products that can be sold in a certain period. This will determine the tendency of customers to buy your product. Get to know your customer base and their shopping tendencies. How much are they willing to buy a certain product? Is there a demand for a particular product? Go over these numbers as specifically as possible. How many products can be sold according to currently available resources? How many products need to be sold to maintain the visibility and success of the current model? What needs to be changed?
- Divide the points of success by the estimated number of units that can be sold to determine the unit price guide. This number doesn't have to automatically be your selling price, but it can be a great starting point to experiment and see how different customers respond.
- Provide genuine customer service, and not just lip service.
Step 4. Study your competition
If you make a bespoke iPhone case, are there other companies that produce something similar? Where? How much is the production cost? How does the business operate? You need to learn various things related to market competition so that you can learn to differentiate yourself from the competitor's model to gain a share in the general market.
- Say your business is one of two yogurt shops in town, and you're confused as to why the original durian flavored yogurt for Rp. 50,000 per cup doesn't bring in many customers, while Dairy Queen sells chocolate yogurt that is just the same and is selling well. You need to identify the prices that your competitors charge and their customer base so you can stay competitive and relevant. Do you guys share a customer base? Is there another customer base you can tap into and market to so your business can be more viable? Is anyone willing to pay the price you charge? These questions are important in determining the selling price for the success of your business.
- Use search engines on the internet to research your competitors. Social media and the internet have changed the way customers find business.
Part 2 of 3: Raising and Lowering Prices
Step 1. Understand the impact of too high and low prices
Inefficient pricing will have a huge impact on your sales figures. You need to learn how to recognize the symptoms of a price that is too high or low. This indicates that you need to make changes.
- Too low price this is often done by companies that want to sell their products in greater volume, and hope their customers feel they are getting a good deal, especially during a bad economic situation. However, this method can give the impression that the goods being sold are “cheap” and not worth buying.
- The price is too high can “drive” customers to other products or services. It can be tempting to set prices too high, especially when a new business is opening and you're trying to be realistic. Investing in business startups can be scary and you may want to cover your capital as soon as possible, but look at it from the customer's point of view too. Setting a high price at a point where it will make a profit only works if someone is willing to pay for it.
Step 2. Watch your prices and budget closely
Monitor your profits and prices at least once a month. Break down the cost/profit of each product so you know which products are the most profitable each month. This can give a clear picture of your cash flow.
- Communicate with customers and listen to their feedback. Consider their input. If they like the product but complain about the price, consider changing it.
- Prepare a budget plan. Try to focus on long-term strategies that benefit your business. Long-term strategy may not make drastic changes right away, but slowly the business will approach profitable goals.
Step 3. Increase the price slowly and gradually
Drastically increasing the price of iPhone cases from IDR 50,000 directly to IDR 150,000 will certainly cost you some customers, even if the price is theoretically appropriate and smart for your business. It's best to gradually increase the price and advertise the benefits and benefits of the product, instead of apologizing for the price increase.
- Sudden change will seem like a desperate move from a struggling business, which may not be true. You need to avoid the impression that product prices are being raised because the business needs funds. Instead, make it seem as if you are increasing the price to match the quality of the product.
- Immediately notice sales volume after implementing changes. If done too suddenly, the change will be negative which makes you need to do more to sell new variations of the product that matches the price.
Step 4. Use promotions to lower prices and bring in customers
Unless your competitors are lowering their prices, or you're not getting enough customers to turn a profit, it's generally a good idea to lower your selling prices. Lowering prices can convey another sense of desperation so that people stay away from your store. Use limited-time promotions, or coupons that have an expiration date, to help bring more customers to your business.
- Use discount and promotional tactics instead of lowering prices all at once. You can even change the number of products that customers get for the same price. For example, November is diabetes awareness month. During this month, you can charge more for sugary drinks and lower prices for healthy foods. Make sure customers know it because it can help guide their decision, and are satisfied with the higher price charged. It also lets customers know that this price change is only temporary.
- Try not to seem desperate. For example, an empty restaurant can give the impression that the food is not good. People may feel that the product is out-of-competitive, especially if the price suddenly becomes cheap.
Part 3 of 3: Using Promotional Pricing Strategies
Step 1. Use creative promotions to bring in customers
Setting prices for promotions is very common in business ventures. This gives customers the impression that at your business they can get good deals, even if you don't always offer them. Try a discount strategy as your marketing medium.
- Use Buy 1 Get 1 Free promotions to get people interested in your products, and make sure they are happy with the offers. If you can keep the customer coming back, even if there's no promotion, then he or she is already a valued loyal customer.
- Often sellers bundle several products in one package to get rid of old or unwanted stock. This strategy is commonly used for old DVDs, CDs, or video games.
- Quantity discounts (20% discount up to IDR 150,000!) and price discounts (only IDR 99,000 after discount!) can also attract people.
Step 2. Provoke the emotions and logic of the customer
Promotional pricing strategy is not just to flood the market with the offered information, but also try to connect with the market. The trick is to try to provoke their emotions or pragmatism. One common business strategy in setting prices is to use the number 9. At first glance, the price saved looks great (even though it's actually almost non-existent). Pricing carefully will keep sales high without changing strategy too much.
- Consider creating a "premium" package to sell the more expensive product to customers with another version that is essentially the same, but "advanced" (ie with more marketing).
- Consider building a product “line” with a variety of price ranges that can be enjoyed by different types of customers. Car wash services (doorsmeer) commonly use this strategy: a regular car wash costs Rp. 50,000, washing and waxing costs Rp. 100,000, and the whole package costs Rp. 200,000.
Step 3. Try a promotional strategy that entices buyers to buy a more expensive product in order to sell more units
In optional product pricing, the company tries to increase the amount of money the customer spends when they start buying. Optional 'extra' products increase the overall price of the product or service. For example, cinemas may charge more for more strategic seating.
- Historically, promotion has proven to be more powerful than advertising.
- One of the disadvantages of promotion is that it tends to be followed by a decrease in sales of the same product or service directly due to promotion.
Step 4. Avoid price exploitation
Price exploitation (gouging) is done by raising prices as high as possible because your business has a substantial competitive advantage, or is the only business selling a product or service. This advantage will not be sustainable. High prices tend to invite competitors into the market and these prices will fall as supply increases.
- Captive product pricing is used when products have complements. The company will charge a premium price where the customer is controlled. For example, a razor manufacturer will charge a low price and recover its profit (and more) from selling razors that only match the model of the razor.
- In some places or conditions, price exploitation is illegal.
Expert Advice
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Before thinking about pricing, get to the heart of how you earn.
For example, if users are at the center of your monetization strategy, it's a good idea to make sure the version of one of the products is able to capture customers and keep their retention for as long as possible. If you have, then you can start focusing on the pricing model. However, if you're delivering something revolutionary in the industry, it's a good idea to have a monetization strategy implemented from the start.
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Expenses will help you determine your pricing model.
When it comes to monetization, think about the most important burden of building the product. For example, if the cost is mostly spent on computing resources, the pricing strategy could be based on the number of users of your platform.
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Sometimes the resulting data is more useful than the user experience.
If the user is a consumer who benefits from the product, think about whether you want to charge him directly to use the product or through a third-party agency, such as advertising on a site.
Tips
- Believe in yourself and apply a specific pricing pattern.
- Set prices according to market demand, and not based on your opinion of the value of the product.
- Understand your segment well.
