At its most basic definition, price is the monetary value charged for a product or a service – or the total value the consumer gives up in order to gain the advantage of owning/using the product or service.

Value is created through customer perception. A consumer will pay for the perceived value in a product or service Setting the right price is finding balance between one price to high (you can’t create demand) and one price too low (you can’t create profit) Customer perception – The price ceiling is set at the highest amount a customer is willing to pay for their perceived value. Any price set higher than this point will not generate demand. Product cost – The price floor is the cost at which a product or service costs. Anything below this price will not generate a profit. THE RIGHT PRICE

There are several ways to price your product or service. In this video, we will only cover the most common 3 ways to price:

This is a fairly straight forward way to price your product. By determining the manufacturing price of the product, a retailer can mark up the cost to determine the sale price. For Example: A widget cost $10 to manufacture. The retailer sells it for $15 (a 50% mark up) and the operating cost are valued at $2 per the sale of each widget. That means the profit margin per widget is $3. This method of pricing is my least favorite. It is really not client focused. It is based on a simple calculation and not on the value to the customer. To reach this goal, the retailer must assume the widget is worth $15 to his customers. If it isn’t, he will lose money. On the other hand, the widget could be valued at $20, at which point the retailer would be losing $5 of profit because he wasn’t aware of the demand for the widget.

This is also known as competitive pricing. Choosing your price based on nearby competitors. With pricing being in very close proximity, a customer then begins to look for differentiation. The customer will have to use something besides the price as the reason behind choosing which service to use or product to buy. For Example: Two gas stations directly across the street from each other are selling Diesel for a $0.02 difference. The customer will likely go to the brand they favor because the cost doesn’t matter to them in this setting. In a purely competitive market, very little marketing has to go into this. The market sets the price and there is not much any business can do to change the over all price. Instead, they can build their brand, or work on selling themselves as the better competitor for some reasons other than their price.

This is the most client focused pricing structure. Having a deep understanding of the value your product or service has on your customer is the determining factor here. This is where quality means the most. If a customer perceives your product/service to be top notch, there will be a demand for it at a top notch price and vice versa. For Example: The price of the smart phone and iPhone can far outweigh the price of an ordinary phone due to its capabilities. When the consumer sees all the functions the phones can perform, they feel the expensive price tag is worth it for the convenience of the phones features. To get to your value –based price, you must invest in market research to best determine the demand and the value placed on your product/service. You also have to look at how you can distinguish your organization from others looking to create the same value for your customers.

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