What is Pricing?
Pricing is the act of establishing the monetary value that you’ll charge for your product or service. This may seem like an easy concept at first, but Freelance Pricing Consultants from Fintalent, the hiring and collaboration platform for Strategy and M&A professionals agree that the process is far more complicated. there are actually three ways of approaching pricing:
- Cost-based
- Value-based and
- Competition-based Pricing.
Each of these approaches can be effective based on your business’s goals and objectives, but they may also conflict with each other in terms of how you price your products or services.
Cost-Based Pricing
In cost-based pricing, you’ll base your price on your costs directly related to production or delivery of a specific product or service. For example, if a supplier is charging you too much for a product component, you’ll need to add that increased cost into your overall price.
Value-Based Pricing
In value-based pricing, the price of a product or service is directly related to its perceived value by customers. In other words, the more perceived value customers feel from buying an item from you at full price, the higher they’ll be willing to pay for it. This can be a great way to boost your company’s bottom line if you’re able to create pricing that encourages higher pricing.
Competition-Based Pricing
Competition-based pricing is the act of establishing prices based on the prices of comparable products or services sold by other companies. For example, if another company offers customized office furniture for $150 per chair, you may decide that you need to charge $175 per chair if you want to keep up with the competition. This is a great way for small business owners to determine an appropriate price without a whole lot of upfront research and planning, but it can also lead to a race to rock bottom prices with your competitors.
What does pricing do for a company?
Pricing is a crucial part of a company’s marketing strategy, and it’s something that many businesses overlook. Pricing is how you determine the value of your product or service to customers, and while it might seem like an obvious concept, there is often more than meets the eye when it comes to pricing. For example, if your prices are too high for products or services, you may find that customers will simply wait for cheaper alternatives before purchasing from you. But if your prices are too low, you may find yourself losing money on every sale — and even worse, attracting fewer potential customers than before you introduced new and exciting products and services to the market.
Pricing is not the same thing as budgeting, but they are similar concepts that work together. When you set the price of a product or service, you’re communicating to your customers that certain products are worth specific dollar amounts. If you’re running a business, this is an important part of marketing.
Pricing psychology for small businesses
But the pricing isn’t the only thing to consider when it comes to marketing your company to potential clients. The psychology of pricing can be just as important, especially if you’re trying to build up your customer base in the early days of your company’s growth. For example, pricing can affect consumer perceptions about quality and value quite drastically.
For example, if you’re selling a luxury product or service, you may want to use prestige pricing. In other words, you’ll set the price higher than your competitors to portray a sense of quality and refinement. This can be a smart way to boost initial sales for your company while also encouraging repeat customers. However, if you’re trying to build up an audience of more cost-conscious consumers, it might make more sense for you to use bargain pricing. With this approach, your company will offer lower prices in exchange for more sales volume.
Pricing psychology is something that small business owners should definitely pay attention to when it comes time to set prices. However, it’s important to understand that pricing is also a science, and you’ll need to take a step back from your company’s psychology in order to truly determine a price that will encourage repeat business and long-term growth.
Pricing psychology for large businesses
Large businesses will probably also need to approach pricing differently than small companies. For example, pricing psychology research shows that consumers are more willing to pay higher prices when they believe there is less of something available. However, this doesn’t apply if the product is essential.
For example, if you’re selling a popular consumer product that is in high demand, you’ll need to price it lower than what you would normally price it. This does not apply if your product is an added luxury item that consumers will pay extra for. For this reason, large businesses need to spend more time establishing pricing psychology before they offer items at full price.
As a small business owner, you may also need to consider what kind of value your customers are getting out of each product or service sale. Pricing psychology shows us that it’s more effective to charge customers on the basis of perceived value rather than actual cost. That may sound like a simple concept, but it’s one that many small businesses overlook. Small business owners will need to review their pricing models carefully and make sure that their cost-based or value-based prices are as accurate as possible.
The psychology of pricing will also help you determine prices for different time periods. For example, pricing psychology tells us that customers will be willing to pay more money for an item if they believe the price is for a limited time only. However, those same customers will be less likely to return if they believe the price is no longer valid and could increase at any time. For this reason, it’s important to use limited time offers sparingly so that you don’t deter your customers from purchasing the item in the future.
Pricing psychology for online businesses
If you sell items or services online, pricing psychology also plays a vital role in your marketing efforts. Online shopping is different than shopping in a physical store because many shoppers don’t feel the need to leave their homes. However, this doesn’t mean that they won’t compare prices to find out which company is offering them the best value for their money. This can make it difficult for small business owners to determine how much they should charge when competing with big name brands, but establishing pricing psychology strategies can definitely help your company succeed online.
Pricing psychology can also be important if you’re selling items that require customization. For example, if you’re selling a custom-made shirt, customers may not be as willing to pay as much if they feel like they could wait for a better deal. However, the psychology of pricing will tell you that customers will still pay for unique items if they believe those items are worth the price. That’s why it’s essential to take your time and make sure that your products and services offer unique value without charging too much extra.
Business owners should also remember psychological pricing strategies when it comes time to set up their online stores. For example, you may want to consider using four-part pricing options or odd prices to make your company seem more unique. In addition, you’ll want to make sure that your site appears as clean and organized as possible. In order to maximize the value of your brand, it’s important to use all of the psychological tricks available to help keep customers happy and coming back for more.
How Can Fintalent’s Pricing Consultants Aid Your Business?
Pricing is a complicated, difficult practice. If you’re just starting out as a company and aren’t familiar with the ins and outs of pricing, you’re not alone. Pricing is an important part of any business as it is so much more than the price tag on the items you sell: it’s part psychology and part economics — and other parts entirely too complicated for this article to cover in full detail. Pricing is a complex system, but it doesn’t have to be a difficult one. Even though it can be difficult to get just right, you’re not without help.
Fintalent has a large pool of product pricing consultants that can help with all of your pricing responsibilty. Fintalent’s has an array of Consultants that can help you develop the best Product Strategy and also help see it out until its final pricing and delivery.
