Accurate pricing of products and services form an integral part of any business. The way you price your products will also determine the success of your business keeping as appropriate pricing will affect your selling potential and will set a platform for your business to prosper. To begin with, keep the following factors in mind while setting a pricing strategy:
- Customer requirements
- Business costs
- Targeted revenue
- Market trends
The above factors will help you clearly define your overall requirements and you can then price your products accordingly to maintain your margin of profit. However, one of the trickiest questions bothering new businesses is whether to overprice or underprice a product.
One of the biggest perils of underpricing is a negative brand reputation. Usually, while setting up a new business, one tends to underprice their products to acquire a customer base. Although, market trends have largely shown the majority of the customers to be primarily interested in the utility and quality of a product or service, rather than the price.
Underpricing can also hurt your business in times of economic crises. In the long run, underpricing can lead to slim profit margins which will consequently affect your overall business and may even give rise to the necessity of closing it down. Even during times of economic slumps, do not fool yourself into thinking that a cheaper product or service has more chances of selling.
Usually, during this time, consumers avoid purchasing anything altogether. Overpricing products, on the other hand, has some notable advantages. Overpricing has the potential to essentially showcase your product or service’s actual market value since higher pricing immediately creates an impression of good quality among customers.
Remember, overpricing your products or services will help cover up business costs while leaving a relevant and satisfying profit margin. This, in turn, will help you concentrate on optimizing the product or service further and thus deliver better products and/or services.
Overpricing will also help you tackle the loss of customers in case you are required to raise prices later. It is important to note, however not to price our product or service too steep since it might be construed as taking advantage of customers. In a scenario where people are always debating the pros and cons of overpricing and underpricing, the best way is to maintain a balance.
Creating a balanced pricing strategy can be difficult since you have to keep different factors in mind. Although one must realize that a pricing strategy is not fixed. One needs to lower or raise prices basis the needs of the business and the context of the market. It is good to keep budget and pricing strategy always ready at hand for at least three to six months in advance.
Meanwhile always stay up-to-date with market trends, especially researches on customer behavior. This will always help you know the right balance of pricing your products so that your business keeps growing.