Product pricing

The skill of pricing a product is a really important skill when you are working in manufacturing or retail. Pricing a product is a process that a company must go trough before staring to sell a product. In this process the seller has to think of both external and also internal factors that affect the price of the product. These factors have to be thought trough because it is the deciding factor if the product is going to be profitable or not, and also has a direct impact to the success of your business. Closing in the right price is finding the balance between the product being affordable for the customer while also making some profit for the seller. Pricing a product has a few different methods of how you can do it, which will be seen later on in the text. Learning from the different methods of pricing helps you attract customers to buy the product and that way increasing the sales of the company. The pricing strategies differ from the needs of the company and their perceived value of the product. Overall the goal of the methods is to set a price for the product that is higher than the production cost of the product while still being appealing to the customer for them to buy.  (Indeed 2022.)

Pricing methods

Cost-Plus Pricing

Cost-plus pricing, is pricing a product with the price being based on the manufacturing cost of the product. This is a lot of times used in a way, where companies have the manufacturing cost of the product and then adding their preferred profit on top of the manufacturing cost, which then forms the final price for the product that they are selling. This gives companies the capability of basically choosing the profit percentage that they want to have, and with this type of product pricing method they can control the percentage of profit they want to have. For example if the manufacturing cost of a product would be 10€ and a company wants a 20€ profit from the product, then they would set the price to 30€. When a company is interested in using this type of a pricing method they have to be aware of all the costs that go into the product before it is ready to be sold. For example overhead costs, labour costs, packaging costs, cost of the supplies and transportation costs for the product. (Indeed 2022.)

Value-based pricing

Value-based pricing of the product is a method that is based on what the actual customer thinks about the value of the sold product. Meaning that this method of pricing is looking at the product from the customers point of view, and trough their thoughts about the product. If a company has the time and resources to do their research really well, then this type of a pricing method is a really good one for their company. In Value-based pricing the customer is not paying so much for the product that they are buying, but they are more paying for the value that the product holds in itself. When the research is done well, the company has the ability to set high prices when they have the different numbers to back up the price that they are setting for the product, and when talking about services the company still holds the capability to lift the prices accordingly once adding additional things to the services. (Campbell 2020.)

Competitor based pricing

In competitor based pricing the company is looking at how their biggest competitors are pricing their products and after that competing with the prices they are providing to their clients. It also involves looking at the market trends and after that aligning your products price accordingly to that. Competitor based pricing is seen as an pretty easy method of product pricing, this is because you only have to research your competitors prices and then settle for an average price that is the most fitting for you. Also using competitive pricing is good for companies because it contains a really low risk in it, when the price is competing with the competitors and there is not a big gap between the other prices. (Campbell 2020.)

Dynamic pricing

Dynamic price is meaning that the prices are dynamic, so the prices are not fixed and they can be changed completely changed depending on the product, customer and the needs of the customer. So the price for a product or a service Is tailored every time for a specific customer depending on the product or service they want. A good example for different types of dynamic pricing would be the ways that they are most of the time used for. The price can be defined by the group that you are selling to meaning that when you are selling to groups the price is different depending on the amount of the people or the location of the group etc. If the price is not calculated by the group, then it can be calculated by the time that the work is going to take. Meaning that you are billing the client for the hours that you are putting to the project, and the client Is paying for your time. Dynamic pricing allows companies to maximize their profits when they can move the prices for example when there is a lot of demand they can make the prices higher but also when there is not a lot of demand they can lower the prices to achieve more sales. (Campbell 2020.)

Conclusion

In conclusion, product pricing is really important for companies for them to maximize their sales and also in the same time maximizing the profits that they are making from the sales. Companies should not pick their pricing method by random, but they should take in to consideration on what type they are going with. The companies need to assess their numbers really precisely for them to be able to find the best pricing method for them and to get the most out of their pricing. The prices of a companies product should be aligned with the company and the value that the companies product brings to the customer. The different types of methods can be tested by the company to find the best one, and testing is a really good style of finding the right pricing method for the company. (Campbell 2020.)

Sources:

Campbell, P. 2020. 4 Most Common Product Pricing Methods + Pros/Cons Of Each Method. https://www.profitwell.com/recur/all/product-pricing

Indeed. 2022. What Is Product Pricing? (With Tips to Price Products). Updated 20.11.2022. Read on 29.3.2022. https://ca.indeed.com/career-advice/career-development/product-pricing