How much?
Wow, that's expensive.
Really, what a bargain!
It's amazing, isn't it, two people could look at the same product, read the price tag and
react in such completely different ways.
It's a good demonstration too that price is not just about rational factors, it is a very
emotive subject too.
And now you are faced with setting the prices for your products and services - not easy,
is it?
In this module we're looking at the basics of pricing as part of marketing.
There's another full module in the series that deals just with pricing.
It has lots of detail to help you work out the best prices for your business.
I suggest you look at that later, I'm sure you'll find it very helpful.
Back to Winning and Keeping Customers.
Let's look at the different factors that affect price.
First of all there are internal factors - things that are within your business.
The first and most obvious is your costs.
What does it cost to produce your product or service?
That includes the raw materials as well as the costs of making it, so labour, machine
time, and so on.
Don't forget the packaging and storage costs, if you have to keep stock in a warehouse.
Of course, if you're offering a service, your costs are completely different.
First, there's your time - a difficult one to value and I'd suggest you look at the Pricing
for Profit module for ideas about how to work that out.
You may have costs involved in getting to your client - road, rail, air or over the
internet.
And you'll also no doubt have costs related to your office or where you are based and
equipment such as computers, printers etc.
Another internal factor that affects price is how many you expect to sell.
If you expect to sell a large number of items, then you may be looking at a lower price.
If you only expect to sell one or two, then the price is likely to be higher.
Where you sell is also important.
Let's take a bottle of milk as an example.
If you buy it from a small corner shop, you probably expect a higher price than if you
bought it in a supermarket.
Think about where you're selling - how might that affect your prices?
And finally, most businesses aren't just selling one product or service, they have a full range.
Prices across the range are going to be important, so make sure you take that into consideration
too.
Now let's look at the external factors that affect price.
These are things that are outside your business.
For example, competitors' prices.
What are your main competitors charging for similar products or services?
Also think about how much competition there is in your market.
If you're the only supplier of, let's say, tyres in the area, you may be able to justify
charging a higher price than if you were one of five suppliers in the same town.
Of course, price sensitivity comes into play as well.
In a market that is highly price sensitive, customers are likely to chop and change their
supplier to get a better deal.
In a low price sensitive market, customers are prepared to pay a little more for the
product they want and will not be so concerned about the price.
How price sensitive is your market?
What can you do to reduce the price sensitivity of your products or services?
This brings us on to the big question regarding pricing.
What are your customers willing to pay?
It is really important that you have a clear understanding of this.
It'll help you decide where to pitch your prices.
Lots to think about, isn't there.
There's a useful template to download called Check Your Prices.
It provides you with a way to pull these external factors together.
Use it to help you set your prices.