Table of Contents
- Importance of Pricing
- Factors to Consider When Pricing Your Product
- How to Price a Product to Sell Using Social Media Analytics
- Mandala Analytics: The Ultimate Tool You Need to Price Your Product
- Final Thoughts
Knowing how to price a product to sell can be the difference between failure and success. If you price your product too low, you may not make enough money to cover the production costs. And if you price it too high, you might lose customers to your competitors. So how do you find the right balance? It takes some experimentation. It can be a time and resource-intensive process, but getting it right is worth it.
One of the common pricing strategies modern businesses use is to look at what their competitors are charging and then adjust their pricing based on their costs and margins. This strategy seems effective in figuring out what works best for your business. But how can you quickly and easily research so many competitors' pricing and keep up to date with changes? You'll need the right marketing intelligence tool to get all the information you need at a glance.
This article discusses how pricing impacts your business and product and how to leverage novel technology to select the best product price that’s certain to sell.
Importance of Pricing
1. Pricing determines profitability
Your product's price determines the net profit you can make on each sale. Even though the cost of each item goes into your product purchase, the profit is calculated based on the total cost of each item. If you're selling a low-ticket product, you need to consider the cost of acquiring new customers throughout your product's life cycle. Otherwise, you may lose huge potential profit down the road. You need to properly research your market to determine the best price, and for that, you'll need a market intelligence tool like Mandala Analytics.
2. Pricing regulates demand
When making a pricing decision, you're trying to find that sweet spot where you neither have to sell too few or too many. Shoppers will typically buy more of your products if you make them available with low price tags. You could make lots of sales this way, but it can be a bad thing if it you don’t have the capacity and the ability to restock and keep up. On the flip side, raising your price too high can turn off many potential customers, so you may end up selling only a few units of your products. It's a delicate balancing act but arriving at an equilibrium price is important.
3. Pricing counters competition
Say you've got a rival business offering a similar product or service at a lower price. What can you do to make your customers buy from you and not your competitors? You could slash your prices to match your competitors'. However, this approach may not always be the best, especially if you offer greater value than your competitors. Beating down your price to remain competitive devalues your product. You should focus instead on improving your product's quality and adjusting the price accordingly. Higher price tags can make your products appear more luxurious, and customers will likely stick with you in the long run since they associate luxury with high quality.
4. Pricing builds brand and product image
Rolex or Casio? When you think of a Rolex, the first thing you might think is luxury and an eye-bulging price tag. Nobody really needs a Rolex, but they might want one badly enough to pay the huge price. When you think of a Casio watch, you think might think of good value with an affordable price. If you need a watch, it’s sensible choice. Of course, Casio likely sells a lot more units than Rolex does. When you price your product too high, you risk turning away potential customers because they may feel it's too expensive and may not be able to afford it. They may even think it's not worth the price and perceive your brand as too greedy for profit. On the flip side, if your product is too cheap, people may not see its true value. Pricing is a very important part of your brand image and brand strategy, so think very carefully… is your brand Rolex? Is it Casio? Is it something in between, or completely different?
5. Pricing determines market share
Your brand's market share is its sales measured as a percentage of the total sales in your industry. You can determine your brand's market share by pricing your product well. Generally, new businesses need to offer products at a lower price than their competitors in order to build market share and increase to a more standard price down the road. If you come into the business space with an expensive catalog, you may find it challenging to capture market share. And if you're too cheap, you'll likely get a fairer market share but won't make much money selling your products.
6. Pricing is a tool for sales promotion
You can leverage pricing to motivate customers to buy your product. Several methods are available to manipulate pricing to get more patronage. These sales promotion strategies may include bundling products together, issuing coupons, or upgrading your product and making it more expensive while increasing its perception of value. However, it would be best to control the frequency of your sales promotions. Once customers become accustomed to paying less, they may expect discounts every time they buy from you. And continuing this way can make you lose substantial profit in the long run.
Factors to Consider When Pricing Your Product
1. Business Goals
Before making a pricing decision, you need to think beyond the prevailing market situation. But also what you want your business to achieve. At the initial stage of launching your brand or new product, your primary business goal will likely be to gain market entry. To achieve this aim, you might need to price your product at a lower level than your competitors to attract new customers.
Similarly, if you're looking to build brand awareness, you may need to use pricing as a tool for sales promotion. Consider offering coupons, sweepstakes, customer loyalty offers, buy one, get one free, or flash sales. A business looking forward to becoming an industry leader may approach pricing a little bit differently. This type of business may raise its price higher than the competition to create a sense of superiority.
2. Consumer Demand
Consumer demand is a key consideration when pricing a product. A direct relationship exists between pricing and demand. Such that when there's high demand for a product but low supply, the price will naturally go up. This market tendency always repeats itself because the supplier has the full liberty to name any price they deem fit since there aren't many products to compete with theirs. And the people whom they are selling to have fewer choices, so they'll have to get comfortable paying more for the product because it's hard to come by.
Conversely, if there's little demand for your product, you'll find it difficult to sell it, let alone make a good profit off it. To be on the safe side, you must assess the demand for your product to determine whether it's worth it. One way to do this is by tracking sales data from your competitor. If they're making good sales, it's an indication of the opportunity for you too. Another way to determine customer demand is by evaluating customer feedback or surveys. Finally, keep tabs on authoritative resources in your industry. These resources topically publish market research often and predict demand for products and services in the future.
Why are Tesla cars so expensive? Are they worth it? For many of us a vehicle is one of the most expensive purchases we will ever make, and we’ll spend a long time deciding which one is the best choice. Car makers like Tesla must balance demand, production costs, brand image and all the other factors when pricing their cars, but the same basic principles to any brand or product.
3. Production Costs
You must take account of your production costs regardless of the pricing strategies you apply in assigning a value to your product. These costs may include your expenditure on materials, labor, and equipment. These costs do not necessarily have to be related to the manufacturing process. They may also include your marketing costs and shipping fees. Use this formula to determine the unit cost of production.
❖ Cost per Unit = (Fixed Costs + Variable Costs) / Number of Units.
Variable costs are expenses that vary from period to period in proportion to production output or sales at that stage of the business cycle. Fixed costs, on the other hand, are constant regardless of the number of goods produced—for example, rent.
After doing the math and obtaining your cost per unit, decide on how much you need to make a profit. Then compare your price to similar products on the market. Ensure it's reasonable and in line with what consumers are willing to pay. If there are similar products on the market, and one is priced higher than the others, consumers will be more likely to buy the lower-priced option because they don't want to overspend or feel like they're getting ripped off.
4. Target Market
As you learn how to price a product to sell, one of the key considerations that will determine the outcome is your target market. Your target market also determines how much you can charge for your product. There are four concepts to study about your target market: affordability, value, competition, and perceived value.
Affordability hints at how much a customer is willing and able to pay for your product. Competition refers to what similar products are available at the same price point. And the perceived worth is how much they think the product is worth compared to other products in its category. So, how do you incorporate your target market's tendencies into your pricing strategies? For starters, know your target market inside and out. Mandala Analytics offers an insight research tool to know your customers better and decide on a price point that will appeal to them.
When planning how to price your product, it's important to consider how it compares to similar products in the market. Your competition can shape your pricing decisions because potential customers already see it as an alternative. So if you're undercut by the competition, you might need to lower your prices or offer other incentives to stay competitive. Additionally, if your brand or product is new on the market, you'll also have to offer lower prices to attract new customers.
Unlike value-based pricing, influenced mainly by a consumer's perceived product value, competitor pricing can be tricky. A high price can be a bad thing for a new brand or product with little publicity. But if your product has been on the market for a while and offers great customer satisfaction, you may want to raise your price higher than the competition. And customers might be willing to pay more because they see and appreciate the value.
You must think about your company's profitability when deciding on a price to sell. Isn't that why you're in the first place? Without profits, your company won't be in business for long. To position your brand for long-term success, you must set a profit target for your product and ensure your pricing strategy is optimized to achieve it.
There are a few different ways to ensure your pricing is profitable. First, make sure you know that you've accounted for all your expenses. Second, factor in your desired profit margin. This is the amount you want to make on each sale after removing the production costs. Finally, select a price point that will make you enough profit based on your goals. But ensure that your chosen price does not scare potential buyers away but leads to sufficient demand and consistent sales.
7. Economic Activity
You also have to consider the prevailing economic activity before making a pricing decision. Sometimes, economic changes occur on a large scale affecting demand, supply, and customer behavior. For example, inflation may increase the cost of raw materials. As the cost of these resources increases, so should your product's cost. Every scenario aims to ensure that profitability grows or remains constant.
Another economic situation that shapes pricing is the availability of labor. When the economy is strong, businesses have more money to spend, which means they're more likely to pay a higher wage for labor. Furthermore, the cost of transportation can go up or down, influencing your expenditure on logistics. Changes in government policy can also have a substantial impact on your product's price.
So how do you ensure your product's price always aligns with the prevailing economic activity? Keep track of the latest news and trends in your industry. And stay flexible to implement changes as needed.
How to Price a Product to Sell Using Social Media Analytics
The pricing strategies you'll need to set the right price for your product typically require taking a cue from existing products. But how can you find these products and their unique prices? Luckily, social media analytics can save you stress by allowing you to see as many similar products as possible in one glance.
What is Social Media Analytics?
Social media analytics involves extracting relevant information from customers' interactions on social media platforms. It's like the search engine of social media. It crawls the entire platform gathering information on products, brands, and trends relevant to your query. How does it work? For starters, you'll need social analytics software like Mandala. Using research software like this makes the process a lot more efficient. You can quickly compare prices and see what the average selling price is for a product in your category.
Why Use Social Media Analytics to Price a Product?
Social media analytics is an incredible method to get an overview of the entire market. It can help you seek out your competitors' pricing to determine whether or not your prices are in line with what people are willing to pay. Conducting pricing research this way can help you find an equilibrium price where you maximize profits without alienating potential customers.
Additionally, it gives you deeper insight into your customers' behavior and preferences. With social media analytics, you get to understand how much your target market is willing to pay, how they like to pay, and what they like or dislike about the products they're paying for. By analyzing data from platforms like Facebook and Twitter, you can get a good sense of what people are willing to pay for similar products. This information can be invaluable in helping you to set the right price for your own product.
Remember, you can always adjust your prices if needed, but it's better to start lower if you're new in the market and raise your price as time goes by. This approach will enable you to capture a market share before your product gains traction. While using your social media analytics tool, you must ensure that you're targeting a social media channel your customers use the most for online shopping. Also, be specific about the kind of data you are looking for. Finally, you don't need an extravagant budget or huge time investment to use social media analytics.
Mandala Analytics: The Ultimate Tool You Need to Price Your Product
There are several social media analytics software on the market offering unique features to help you price your products efficiently. To save you the stress of researching endlessly, we've recommended one that will most likely fit your needs.
Mandala Analytics is your one-stop resource for intelligent marketing insight. With this tool, you can effortlessly uncover information in the online space critical to your brand's success. Mandala System enables you to find the right insights and gain a competitive edge with accurate real-time data. In the next few steps, I'll show you how to use Mandala to execute well-informed pricing research. These steps will help you get an idealistic price that will appeal to your customers.
Now let's assume you want to start a new backpack business. Or you want to modify the prices of existing products. You would want to learn about the prevalent prices of similar backpacks in the market. And to do that implies taking a peek at what your competitors are doing. Since social media is a vast advertising and marketing resource for brands and businesses, you can expect to learn more about the common price to sell through the help of social analytics over here. Below are the five steps to use Mandala social analytics for pricing research:
1. Open the social analytics tools. And enter your keywords in the Keyword Set box.
2. Since the backpack is a slightly broad term, you may have to distribute keywords in different sets. Optimize these keywords to provide information about price by including the word "price" or "cost" in your keyword. Ideal keywords for this example may include: laptop+backpack+price, backpack+price+starting from, travel+backpack+cost.
3. Once you receive the data, go to the top mentions to find the posts and conversations that contain a reasonable price for your products. These mentions will help you decide whether your price is too high or too low for your product.
4. After exploring the different mentions in the results, you'll find some prices more reasonable than the others, and you'll need to keep track of them. To do this, add that mention as a tag. I've set up different Tags for these campaigns since my product comes in different types.
5. If you only want to find the mentions you have tagged before, you can use a filter tag to narrow your search.
You see, the process is pretty straightforward. Mandala Analytics helps you eliminate the guesswork from your pricing research by providing accurate, real-time insights on your competitors' pricing and how your target market perceives your product. With Mandala, you can learn what is common and appealing to people, letting you be confident with your pricing strategy.
Besides pricing research, you can accomplish a lot more with Mandala Analytics. Our marketing technology encompasses six use cases: listening and monitoring, insight research, content strategy, improved sales and customer engagement, business development, and influencers and trendspotting channel marketing. This means you can gain insight into your social media presence, identify trends in your audience's behavior, and improve your marketing campaigns on a single platform.
Would you like to see how Mandala Analytics drives business growth? You don't need to enter your credit card details to get started—Sign-up today to explore our seven-day free trial.