How to set the price of a product or service?

#1. Cost-Plus Method (Cost Method)

This is one of the simplest ways to determine the price of a product or service, which involves increasing the cost of production by a certain percentage margin.

Let’s imagine that you have set list of armenia cell phone numbers up an online store with children’s toys and you want to determine the prices at which your goods should be sold. The production costs will consist of:

• price of materials – PLN 15;
• employee salary – PLN 25;
• transport – PLN 10;
• advertising and marketing – PLN 15.

To calculate the final price, add a fixed margin to the calculated production cost – it can be any percentage, usually ranging from 35 to 250 or even 500 percent. This calculation will look like this:

Production cost (65 PLN) x Margin (1.5) = Selling price (97.5 PLN)

Advantages: The biggest advantage of the cost method is its ease of use – usually, production costs and labor costs are expenses that are already calculated by the company, and to get the final price, all you need to do is add a margin to them. Provided that the production or labor costs do not change, the price calculated in this way will guarantee you stable income.

Cons: The cost-plus method does not take into account market conditions – such as competitor prices or customer perceived value.

#2. Competitive Method

As the name suggests, the reference point in this pricing strategy is the price set by the competition, and the main assumption is to set the price for your product at a lower level than it. The competitive method works best with products that are easy to replace with goods from other manufacturers (e.g. FMCG industry) – and price becomes almost the only way to attract customers.

Advantages: This pricing strategy can be useful when we are able to negotiate lower prices with the supplier for the purchase of goods or raw materials, and eliminate unnecessary costs where possible, while placing emphasis on promoting the affordability of the goods.

Disadvantages: The competitive method does not work for companies operating on a smaller scale. Low margins should be compensated by high sales volume, which is often beyond the reach of small businesses. Another thing worth considering is that not every low-priced product is attractive to buyers. They do not always reach for the cheapest product on the shelf – before deciding to determine prices using the competitive method, you should learn about the preferences and purchasing behavior of potential customers.

In the case of products that do not have one-to-one substitutes, the competitive method is a less common procedure, because there is no acute need to conduct a price war – reaching the right segment of the target group and the appropriate brand image will be more important.

#3. Value-based pricing: value-based pricing

The main factor to consider when using the value-based pricing strategy is how much the product is worth to the customer. It is somewhat the complete opposite of the cost method digital marketing in 2032: what do industry leaders predict? because it primarily considers the needs and wants of the target group. This strategy suits companies that sell unique products best, because customers are attracted to the added value (for example, how it will improve the appearance of the product) – for which they are willing to pay more.

It is worth using a value-based pricing strategy if:

• the brand is recognized and has an established position on the market;
• the product is unique, high quality and popular;
• the company conducts creative marketing campaigns;
• customer experience is at a high level.

The brand’s image in the eyes of the customer is important – if they perceive it as a premium brand and can afford it, they will be willing to pay more.

Advantages: Value-based pricing allows you to price a product higher than its production costs would suggest.

Cons: This strategy is hard to justify for commodity products . Perceived value is very subjective and depends on many factors – cultural, social and economic – that are often beyond our control. In this case, it is hard to say what the price should be, because there is no exact formula.

#4. Cream product or service Skimming Strategy

Otherwise known as “price skimming”, this strategy involves setting a higher price at the beginning of the sale of a product and lowering it over time.

The main idea of ​​this strategy is to achieve higher profits when demand is high and competition is low. A striking example of this strategy is the Apple brand ej leads which covers the additional costs of creating the next iPhone model in this way. It will also be useful in situations with the following conditions:

Advantages: The cream-skimming strategy helps to obtain higher revenue in a short period of time when introducing an innovative product or a product with high demand potential. If the brand has a premium positioning, this approach will attract the attention of customers who want to experience the new product or service first.

Cons: Not the best decision for markets with a lot of players – unless your product is really unique. Plus, if you drop the price too quickly or too much, it can upset customers who paid full price for it.

#5. Market Penetration Strategy

Is there anyone here who doesn’t like sales? According to a study conducted by Software Advise among retailers, 99% of them use a discount policy at least from time to time – and the vast majority admit that it works very well in practice.

Market penetration strategy (often also called pricing strategy) is about attracting the largest possible number of customers, which in turn will lead to the largest possible number of sales. The deciding factor here will most often be low price. This strategy is most suitable for businesses operating in high-capacity markets and ready to spend a lot on advertising.