Business Pricing Strategies: Setting the Value of your Products and Services

Posted by Fitz Villafuerte under Business on August 11, 2011

In business, setting the right prices for your products and services is essential to its growth.

Unfortunately, many entrepreneurs, specially those running small to medium scale enterprises, commit the mistake of charging prices solely based on competitors.

They fail, or simply choose not to, consider the actual costs of production, operation expenses and a good profit margin to their equation.

To help you with your business pricing strategies, here are some pointers you should remember.

Having The Right Price
To determine how much you should charge for your products, you should consider not just the prices of competitors, but also, how much it’s costing you to produce and operate the business.

Furthermore, an acceptable profit margin must be added to ensure that the business remains worthwhile for you to run. After all, nobody wants to just break even.

Unfortunately, there is no simple formula to come up with the best prices. I have before, written a straightforward pricing technique which I believe is always a good starting point.

My personal advice is to compute your prices solely based on production, operation and profit first – be thorough and meticulous. After that, fine tune your figures by taking into account the prices of competitors and the purchasing power of your target market.

Setting Prices Higher Than Your Competitors
For consumers, the price of a product or service is just one of the many factors they consider when purchasing. More often than not, they also give weight to product quality and customer service.

If your price calculations result to a higher figure than what others are offering – then invest in informing your market why you’re the better choice in terms of quality and service.

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For example, based on my food costing template, an order of scrambled eggs in my restaurant business would cost P10.50.

If the adjacent “carinderia” is selling the same for just P9.00, instead of just copying the price, I’d try to provide better dining experience to my customers first.

I could likewise inform them that only the freshest eggs are used for the recipe. This will hopefully convince them that the extra P1.50 on the price is worth it.

Remember that initiating a price war should be your last option. Take the battle first on quality and service.

When Quality and Service Is Not Enough
Still not selling well? Then prepare yourself to adjust prices… but be forewarned that once you take this route, it’s hard to turn back.

As a “second to the last option”, I suggest you try a different marketing approach first, target another demographic perhaps?

You can also change your business model, or work on improving your product quality and customer service to make it more appealing to costumers.

It’s All About Value
At the end of the day, everything boils down to value – not the monetary value, but the emotional value that you provide your costumers that really matters.

While it is important to cover your costs and produce good profit, it is more essential to make your costumers feel happy and satisfied with their purchase. When they feel that it’s worth it, then they’ll certainly come back for more.

Learn more business strategies by subscribing to Ready To Be Rich.

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Photo credits: msaari and stevendepolo


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6 Responses to “Business Pricing Strategies: Setting the Value of your Products and Services”


  1. desertman says:

    Nice post Fitz. Sometimes, lowering the price up to your competitor’s level is the only way to have sales. and i’ve done that a couple of times. but once you got your customer hooked up on the quality of service you provide, a gradual increase in price would not matter to them at all.

    By the way Fitz, I just want to post here my new blog:

    http://www.myquestforriches.com/

    hope you won’t mind.

    Thanks,
    Desertman

  2. Elizar says:

    my father just recently opened a Hardware store.. what he did is he made the prices super low compared to the other similar businesses.. His reasoning is that he don’t have other business operation costs, ie rental etc.. which ithink is reasonable

  3. chip says:

    great article, unfortunately, people who go here at the provinces has a bias in value. the grandeur of modern and sophisticated hotels and resorts has become a norm for most people that they forgot how expensive and difficult to build one. they assume that concrete, gravel, wood etc are cheaper in the provinces than in manila, when actually they are quite the same. and clients demand that our resort is too expensive for a price of P150 per person, visit Green Star Park Philippines on facebook and judge whether P150 is expensive or not.

  4. desertman says:

    Hi Chip,

    Yes you are right. A lot of people from the urban areas do expect lower priced hotels and resorts in the provinces. And I think you cannot do anything about it no matter how hard you explain it to them with regards to construction costs, overhead costs and other operating expenses. Besides, the effect of increase in prices of gas, basic commodities and salaries are felt all over the country.

    What I could suggest is you can justify your price with the quality of service your provide. IMHO, I wouldn’t mind paying a hefty price tag when the service I get exceeds my expectations. And making your place more upscale and high-end would surely invite those people who have higher purchasing power. If your place is in a rural area, improving the aesthetics and amenities of your place combined with high quality of service, wouldn’t give anybody a chance to complain with your price.

    Just my two cents 🙂

    Hope you could visit my blog: http://www.myquestforriches.com/

    Desertman

  5. Davs says:

    I think i should follow your what is written on your article. What im doing right now is just lowering the price. Thank you for the information.

  6. Ajrah says:

    Hello.i am planning to run a small business in our town (province of davao) but i dont know how to start it for this will be my first time to invest in a business.i dont have any idea at all.please help me out.what really feared me are the competitors and a small capital of maybe P150,000.00

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