How SMBs Can Adopt and Implement Smart Pricing Strategies that Boost Profitability

Without a good price-point that holds up in a competitive market, your product may not have better chances at selling. Here are the reasons why:

- With increased access to the internet and empowered by smart devices, consumers have at their fingertips a whole array of choices. They can browse different websites to narrow down the search to something that is on offer for less. Competitive pricing will help you grab and hold on to your customer.
- By tracking the prices being offered by your competition, you may choose to offer the same if not a cheaper price-point. This could streamline your operations in order for the business to become sustainable and profitable at the same time. In the long term, it could prove to be a beneficial move for your organization, subject to other conditions
- For consumers, this is a win-win situation. They get their money’s worth and are also encouraged to buy again from you, thereby unlocking repeat business opportunities for you.

Now, pricing a product is not easy. Some companies simply look at the prices being offered by other companies and price their products or follow what they have been practicing for years. There is, however, a need to look at the matter more closely.

There are three types of pricing. Let us find out more on them:

- Value-based Pricing: Value-based pricing is driven by the value perception. A company determines the price of a product based on its perceived value in the mind of the customer. It is focused on the customer to determine the pricing of its products. For instance, if the ownership of an item, such as an expensive bag or car, adds to the image of the customer, it will be priced highly.
- Cost-based Pricing: This is looked upon as the easiest way to price a product. When the fixed costs, variable costs as well as a percentage of markup for profit are all factored in, this is the full-cost of the product.
- Dynamic Pricing: In this case, the price of the product is determined by the market demand for it. It is flexible. Also known as “surge pricing,” dynamic pricing happens through continuous readjustments of pricing, depending upon the demand for it.

After studying the various pricing approaches that you can adopt and implement, here is a step-wise guide on how to price a product:

The primary aim of any business venture is to turn in a profit. For this, you have to look at all the expenditures you are likely to make – from the procurement of raw materials to the cost of production, payment of labor fees to an overhead which accounts for actuals. Pricing boils down to how much it costs you to provide the goods or services and marking a percentage of profit over it. The profit you make is also impacted by market forces, such as the prices offered by competitors, the demand and supply for your goods in the market, and ultimately, a competitive price for the consumer.

This will help you reap further dividends. Identify the unique features of the product you wish to sell to cater to specific needs. Highlight and promote these features to attract the consumer. Let us see how:

- Product features, which are generic by nature usually attract an easy-to-afford pricing bracket. For instance, a bottle of shampoo which does not offer any additional benefit has to be easily affordable for it to move from the counter.
- Product features, which are specific and unique by nature, can demand a higher price. It is offering an additional feature for which it can charge extra. For instance, a bottle of shampoo which offers to control dandruff can cost more than a normal bottle of shampoo.

It is important to note here that there may be more than one player in the market segment you are targeting. Compare your pricing with similarly-featured products to determine your price point. For instance, you can compare the price of a dandruff-control shampoo with another dandruff-control shampoo. Also, remember, not everyone needs a dandruff-control shampoo. So, the more features you add to your product, the narrower your target segment gets.

Once you have studied your competition, market, and customer, it is time to formulate an action plan to price your product. There are many ways to go about it. Here are a few ideas:
- To initially penetrate the market, price your goods nominally when you launch them. This is called penetration pricing.
- With continued focus on manufacturing and transporting your goods, price your products economically. It can change from day to day. This is called economic pricing.
In premium pricing, prices are determined to charge a premium. This applies for high-end products.
- You can also approach the market with a high price. Readjust it later to offer a lower price to match your competitors through price skimming.
- Offer discounts and deals through promotional pricing.
- Psychological pricing is very clever. Do not break the threshold. Stay shy of it just by a small margin. For instance, brands price their products at INR 999 instead of touching the four-digit figure of INR 1,000 to attract customers.
- You can explore options to offer customized services through versioning. Offer good, better, and best versions of the product with additional features. Charge accordingly.
- Sandwich pricing is also a very clever approach whereby you offer high, medium, and low prices. It usually propels the customer towards the medium-priced product.
- Win through service. Set the same price as your competitor but offer customized services.
- Value-pricing, as discussed earlier, factors in how the customer perceives the product. This determines the price-point.

With the knowledge of these smart pricing strategies, choose the one that suits your product the best. Make business simpler by doing simple business.