Coming up with the right price for your product is essential to keep the customers assured about the utility derived from it. It is a known fact that producers aim at maximizing their profits. This is the primary goal of every producer.
This does not mean the rising of prices to unreasonable levels as this would discourage the customers from giving your products a second glance. In addition, lowering the prices would have the effect of attracting to customers to your products. However, it could also mean losses for your company; a situation that would not be desirable.
In this case, therefore, it is important that you find some way of coming up with an equilibrium price which would retain and attract customers while also ensuring your profitability. It is important to acknowledge that there is no blue print as to the best method of coming up with the right price for your products. You also need to understand that prices are always changing and; therefore you will need to revise them. However, the following techniques should be of help.
It would be important that you orient yourself to your target market as well as your customers. This entails incorporating some knowledge about your products. If the products were meant for high-end customers, lowering the prices would decrease demand, as the product would appear inferior. Similarly, products that are insensitive to changes in prices should have higher prices, for example, products for weddings, as many people go beyond their budget to make the best of the big day. Low priced products would definitely make the wedding look cheap, which is not desirable at all.
In addition, you need to evaluate the willingness of the customer to pay a certain price. In this regard, you would need to look into the utility the customer would derive from the products. This would demand that you ask questions pertaining to reduction of risk by the product for the patron; how much the customer’s life is enhanced by the product as well as any additional profits the consumer would generate from the product.
In addition, you will need to ask yourself about the price that would appear too cheap or too much to the customer. You will acknowledge that quantifying some of these benefits that the buyer derives is not very easy. It would be important, however, that you be guided by the amount that the customer would be willing to pay for the product, and not how much it costs you to produce it.
You need to acknowledge that the price-setting strategy is more or less a trial and error method where you set the price at a certain level then revise it later either upwards or downwards. This should be guided by the performance of the product in the market at particular prices. It is difficult to predict the appropriate prices for the particular products or even the trend of changes. However, increments would do very well especially in cases where you are producing many commodities, as the customer may take some time before knowing the products for which you just raised the price.
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