In a dynamic marketing world, price has a profound influence on consumer decisions and brand perception. More than just a number, price is a psychological game that affects how consumers perceive value, make purchase decisions, and form brand opinions.
Your pricing model is an important factor in your marketing strategy because it directly affects not only your revenue, but also supply and demand. Selling the product at a lower price will attract more buyers, and as a result, supply will need to increase to meet the demand. The price you choose for your products also sends a message to your buyers. A higher price may indicate a higher quality product, while a lower price offers a budget-friendly option. Your pricing strategy will also affect your marketing mix. In other words, how you value your product affects how it will be marketed.
The price-marketing mix relationship is a bit more complicated than it first appears. Pricing affects your revenue, which in turn affects how much you can spend on marketing. The higher your revenue, the more money available for advertising and promotion. Of course, the lower your price, the more sales you can get. But if this results in less profit, it will also automatically reduce your marketing budget. This could mean reduced returns in the long run. The perceived value of the product is also important here. Demand for some products is more sensitive to price changes than others. In this case, we should use different evaluation strategies in evaluating our products. Let's take a closer look at these evaluation strategies.
If you want to increase your market share – and who doesn't? – it is very important to set the right price. When thinking about how to present prices to customers, it is also very important that you can justify it. The most common approaches used in evaluating a product are:
Intuitively, pricing a product based on perceived value by customers sounds like a good idea. But how does it work in practice? In fact, it's all about product differentiation. What differentiates your product from its closest competitor in the market? What else does your product offer your target customers and how much would they be willing to pay for it? Once you've determined what the add-on is to your offer, you can tailor your market research to measure its value. One thing to note is that this approach is only appropriate if there is an existing competing product in the market that you can use for comparison. It doesn't work if your competitors are pricing their products at an absurdly low price point.
This approach to evaluation works from the bottom up. The idea is that you calculate the total cost of producing a product, including both fixed and variable costs. Then you add a profit to it, say 20%. This means that if your total expenses are 100 manats, you will sell the product for 120 manats. It sounds simple because it is. Of course, once your product is on the market, you need to adjust the price. If you're selling your product faster than you can make it, that's a cue to raise the price. If no one buys, you'll have to cut it.
Competitive pricing involves checking what your competitors are charging for comparable products and using that knowledge to set your prices. Your production costs or target revenue shouldn't be completely overlooked when using this approach, but they won't be a top priority. This approach is suitable for situations where there is not much to differentiate your product from your competitors. In this case, pricing becomes an important element of your promotional strategy.
In the more budget-friendly part of the market, the economical evaluation stands. This is similar to competitive pricing, but additionally targets potential customers who only care about price and nothing else. This is a strategy to sell a large amount of product very cheaply. It has been one of the best marketing trends since time immemorial. If you want to compete on quality, this is not the pricing model to use. The target audience does not care enough about quality to be willing to pay more for it. Indeed, you accomplish this precisely by sacrificing quality: using cheaper materials, excluding high-end features, and generally keeping your manufacturing costs as low as possible.
New business owners often use reputation assessment to gain a foothold in the market. The essence of this valuation is to set the price of a new product artificially low to attract customers and then raise prices when your market share is more secure. The main objective here is to get an opportunity to impress your target customers with your excellent product and customer service. That way, your customers won't mind paying a higher price later. The classic way to do this is with attractive offers. Many people will be willing to try a new product or service at a discount. If they like it, they'll likely come back for more.
Dynamic valuation is when the price changes regularly according to the current level of supply and demand. You have to be a little careful with this assessment. If implemented poorly, it can reduce customer satisfaction and drive people away. Regular customers may not appreciate that they have to pay a higher price than they expected. Because of this, it works when your customers either don't have many choices of who to buy from or are looking for a quote. In the latter case, there are no standard price expectations, so you can use supply and demand to guide your dynamic pricing strategy.
Finally, price filtering. This also works inversely to the price of reputation. In this model, you start with a high price and gradually lower it. This may seem like an odd approach, but for some products it is a very effective strategy. Perhaps the most obvious modern example is consumer electronics. When the latest game consoles are released, the companies that make them set a high price point because they know that there is a group that will gladly pay that money to get the product quickly. Over time, companies lower the price to entice new buyers. There are usually significant price drops for older consoles when new ones are released. Thus, console manufacturers get the maximum profit from each console released.
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