The Price Is Right: Strategies for Finding the Ideal Price for Your Products - Deepstash

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Setting the right prices for your products

Setting the right prices for your products

This is a balancing act. A low price isn’t always ideal, as the product might see a healthy stream of sales without turning any profit. Similarly, when a product has a high price, a retailer may see fewer sales and “price out” more budget-conscious customers, losing market positioning.

Ultimately, every small business will have to do its homework. Retailers have to consider factors like cost of production, consumer trends, revenue goals, and competitor pricing. Even then, setting a price for a product isn’t just pure math (numbers behave in a logical way; humans, not so much).

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How to choose a pricing strategy

  • Understand costs. If you order products, you have a straightforward answer of how much each unit costs you, which is your cost of goods sold. If you create products yourself, you’ll need to determine the costs of your raw materials.
  • Define commercial objective. Think about your commercial objective as your company’s pricing guide.
  • Identify your customers. Consider the disposable income your customers have.
  • Find your value proposition. What makes your business genuinely different? To stand out amongst your competitors, you’ll want to find a pricing strategy that reflects your values.

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6 common pricing strategies for small businesses (part 1)

  • Cost-plus pricing: You make the product, add a fixed percentage on top of the costs, and sell it for the total.
  • Competitive pricing: It refers to using competitors’ pricing data as a benchmark and consciously pricing your products below theirs.
  • Value-based pricing: Value-based pricing refers to setting a price based on how much the customer believes a product or service is worth. It’s an outward approach that takes your target market’s wants and needs into play.

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6 common pricing strategies for small businesses (part 2)

  • Price skimming: It refers to when an e-commerce business charges the highest initial price that customers will pay, then lowers it over time.
  • Penetration pricing and discount pricing: It’s no secret that shoppers love sales, coupons, rebates, seasonal pricing, and other related markdowns.
  • Keystone pricing: It’s when a retailer determines a retail price by simply doubling the wholesale cost they paid for a product to set a healthy profit margin.

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