pricing strategy

Pricing strategy many times does not receive the importance it deserves. Not properly pricing your product most likely lead you to bankrupting your business. When developing their marketing plan, entrepreneurs skim over the pricing strategy: I wonder how is it that the decision is made about how and to whom they will market their product.

Your pricing strategy could vary when selling a product or service. For example, your pricing strategy can be set to generate maximum profitability for each unit sold. You can also set your pricing strategy to protect an existing market from competition as an “entry barrier”, to increase market share within a market or for your business to enter a new market.


Depending on the goal you are trying to achieving you must mold your pricing to achieve that goal, which in turn will affect the other three P’s of your marketing mix (product, promotion, and place). Your marketing mix crucial when determining what product or service you are going to offer and its branding.

It might not have occurred to you before but pricing your product is not a guessing game of simply charging everything you “think” your product is “worth”. Pricing strategy is critical for the profitability and survival of your business, because it represents what value customers see in your product or service. Determining the price of a product or service is actually one of the most important management decisions you make.

Here are some reasons why your pricing strategy is important:

•    Price affects revenues and your business profit. This alone could determine your business survival or demise.
•    It affects your marketing strategy.
•    Depending on the price elasticity of your product, it can impact the demand and sales of your product.
•    Pricing extremes (price that is too high or too low) will limit the expansion of your business.

Customers’ perceived value

The perception of the value your product or service offer alone will not sell your product. While it is important to demonstrate the value of your product, if you price far exceeds the value your product offers, your prospective clients will search for an alternative. The bottom-line is that customers buy according to their perceived value. So what is perceived value? Perceived value is the difference between a prospective customer’s evaluation of the benefits and costs of one product when compared with others.

The elements that affect your pricing

Pricing strategies count on lots of factors. Your price must include not only production costs, but also transportation and delivery, warehousing, and packaging to arrive to its true unit production cost. For example, a retail store must take into account its utilities, personnel costs, and regulatory compliance.

Another element is competition. You must understand what competitors are charging. This means you should know who your competition is and what alternatives to your product or service are available in the market.

As you can see, pricing strategy is not a guessing game. For your business to succeed you must set the right price.