How to find the perfect price for your product?

How to find the perfect price for your product?

Step 1: Basic pricing


When pricing your product, the first thing to do is to research the price of the product in the market.


There are three main basic pricing strategies:
Competition-based pricing
Cost-based pricing
Dynamic pricing


Competition-based pricing


Competition-based pricing is about comparing various similar products in the market and then finding the pricing that’s right for you.


Your price can be higher or lower than your competitors, depending on the quality, features, and brand positioning of your product.
1. If you are a new seller entering a competitive market, you can price your products below the market price to attract more consumers.


2. If you want to emphasize the brand positioning of your product to users, and your product has better quality and more powerful functions, your pricing can be higher than the market.


3. When you want to maintain the competitiveness of your product while maximizing profits, you can directly copy other products on the market and sell them at the same price.


Each of these three strategies has its own advantages and disadvantages. When setting prices based on competitors in the market, sellers should have a clear understanding of the cost and quality of their products and not blindly copy the prices of their competitors.


Cost-based pricing

As the name suggests, it is to add a markup to the cost of the product. This is the simplest and most commonly used pricing strategy. When using cost-based pricing, sellers must take into account all costs, including advertising costs.


How to calculate costs


Let’s look at an example. Suppose you are a clothing seller who sells print-on-demand T-shirts . Here is the cost breakdown for a T-shirt:
Manufacturing cost: $27
Indirect cost: US$2
Labor cost: 2 USD


Total cost = $31. If you plan to increase the price by 50%, the product price will be $46.5.


Dynamic Pricing


Dynamic pricing means that you set prices flexibly based on market demand. You can adjust prices based on time (daily, weekly, etc.).


After choosing the basic pricing model, you can also adopt a pricing strategy that combines multiple models.


Step 2: Take long-term profits into account


Once you have decided on a pricing model, the next step is to evaluate the long-term profitability of your product. Compare your product pricing to your costs to ensure that your revenues cover your costs and that you are profitable.

For example, if you use cost-based pricing, you need to think about how much to increase the price and how much sales you need each month to cover all the costs, for example:
E-commerce platform fees
Venue rental
Marketing expenses
Payment fee
Taxation, etc.
You need to collect these data every month and calculate the monthly cost. Then calculate how much sales you need to achieve to make a profit at the current price. If you achieve sales but don’t make a profit, you need to adjust the price.


Step 3: Adjust your pricing


The ultimate goal of sellers is to gain market share while maximizing profits. To achieve these goals, you also need to understand the concepts of elastic pricing and consumer surplus and find the balance between market demand and profits.


Let’s first look at what elastic pricing and consumer surplus are :



Flexible pricing


       
It is also called the price elasticity coefficient of demand, which can reflect the impact of price changes on product demand.



Consumer Surplus


It refers to the difference between the highest total price a consumer is willing to pay when purchasing a certain quantity of a certain commodity and the total price actually paid.


Consumer surplus reflects the additional benefits that buyers themselves perceive as having obtained .



By reducing indirect costs per product (e.g. increasing ROI on advertising spend) and strategically raising product prices, consumer surplus can be reduced.


Assuming you’ve found products that consumers are willing to pay more for and that have low pricing elasticity (no promotions needed to drive sales), you also need to determine your overhead and profit targets for the products.


Conversion rate can help you calculate how much traffic you need to reach your profit target and how to adjust your price. For example, the lower the conversion rate, the higher the price should be to cover the cost.




Three major promotional pricing strategies


Here are three promotional pricing strategies:


1. Anchor Pricing


First show the normal price to the consumer, and then mark the latest low price next to it. This strategy does work, but if it is used continuously, consumers will find it equivalent to fraud and damage your brand image.


2. Discount Pricing


This is a common strategy, such as offering bonus discounts to new customers or sending discount emails to users who abandoned their shopping carts to increase conversion rates.



3. Loss-Leader Pricing


This strategy is to sacrifice profits to gain market share. This pricing method is mainly used by new sellers entering the highly saturated market. Of course, Amazon also uses this strategy to gain market share.


The above are the steps on how to set a perfect price for your product. Keep in mind that there will be new fluctuations in the business, and continue to adhere to key performance data and optimize.



Text ✎ Mary/
Statement: When reprinting this article, the title and original text must not be modified, and the source and original link must be retained.


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