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Pricing

Setting a price for your product should not be haphazard, a thumb suck. Pricing should be aligned to your business identity, brand, financial stabilit
© International Culinary Studio

Setting a price for your product should not be haphazard, a thumb suck. Pricing should be aligned to your business identity, brand, financial stability, and personal goals. Firstly, when developing your pricing strategy, you need to determine what is important to you and what contribution you want your business to make to the economy and the world.

Next you need to be aware of how your competitors are pricing their products and their pricing strategy. This is specifically important if you happen to be one of many small businesses with comparable products, your pricing strategy can give you the edge. Speaking to your customers will also inform you of what they are prepared to pay for your product.

Here are some simple pricing strategies that you could use:

  • Price skimming is where a high price it set when the product is introduced to the market and reduced as more competitors enter the market. You can then get the benefit of lower prices and undercut competitors when they enter the market at a later stage. This strategy hinges on the market you are wishing to enter and the competition in the market at the time. Look at how Smart Glasses started off at high prices and slowly they are reducing in price as new competitors enter the market.

Smart glasses costing $5 000

  • Market penetration is the opposite of market skimming, here your price is set lower than your competitors to try and sway consumers away from the competitor to use your product.
  • Premium pricing is where high quality products are created and then marketed to high-income individuals. This would require a ‘luxury’ or ‘lifestyle’ brand strategy to appeal to this consumer. For example, a chocolate that has edible gold leaf that costs anywhere from $30,000 to $100,000 per kg!

Chocolate lolipop

  • Economy pricing targets customers who want to save as much money as possible on products that they buy. Usually, to adopt this strategy you would need keep overhead and product costs extremely low and benefit from scale of production.
  • Bundle pricing is where a few items are bundled together sold for less than the items would cost individually, for example ‘3 for the price of 2’, or ‘select 3 items and get the lowest priced item free’. A successful bundle pricing strategy involves profits on low-value items outweighing losses on high-value items included in a bundle.

Eezy-cheezy-chicken

  • Dynamic pricing is where pricing is changed according to consumer demands. For example, airlines will offer lower fares in mid-day and weekends when less people travel and price air tickets higher in the early morning, evening, and weekdays when people mostly travel. This type of pricing strategy is quite useful for a small food company that can make the most of seasonal products and varying demands.

Recall our earlier discussion on calculating costs and selling prices? Understanding your costs and your cost of sales will assist you when deciding on the best pricing strategy to suit you and your business.

Activity

Consider which would be the best pricing strategy for you to adopt? What are your intentions? You will need this for your Marketing Strategy later in this lesson.

© International Culinary Studio
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