Business Sphere

     In selling your product or service to the customers, your primary objective is to maximize your profit by pricing it higher.

     However, in buying your product or service, the customers’ objective is to maximize their satisfaction by paying the lowest price. And unless you can differentiate your product from that of the competitors, it is a basic principle that customers will always buy a product with the lowest possible price.

     Therefore, how do you price your product or service in such a way  that you will generate enough profit, make your target customers buy your goods, while at the same time remaining competitive?

     Pricing is always a function of knowing your market, your customers, developing your brand or  image, and differentiating your products or services from that of the competitors.

     Having done these, you can now proceed to set a price for your goods and services. Basically, there are four pricing strategies, as follows:

     First, cost-oriented pricing. You set your price on the basis of your cost. This means you just add a certain percentage to your cost to get your target profit or mark-up. This is also called mark-up pricing or cost-plus pricing, which means cost plus desired mark-up or profit. If your business deals in retail, buy-and-sell, or distributorships, then this strategy is ideal.

     Second, demand-oriented pricing. You set your price based on the level of demand of your product or service. If the demand is strong, charge at a higher price, and if the demand is weak, then lower your price to stimulate demand and attract more customers.

     Third, competition-oriented pricing. You set your price based on what the competitors are charging. This is suitable if you and the competitors are selling the same or similar products. However, you can charge higher than the competitors’ if you have developed a brand for your business, or if you know how to differentiate your products and services by offering extras.

     Last, market-penetration pricing. You set your price lower to penetrate the market and capture a sizeable market share. This is suitable if the customers are price-sensitive, and if you want to discourage existing and potential competition.

     In the end, your pricing strategy must be a part of your business strategy to survive in the market, achieve growth, and generate more profit.