A good price must:
Contribute to the achievement of the company's financial, commercial, and strategic objectives.
Firstly, you need to define your objectives: do you want to maximise your short or long-term profits, increase your market share, discourage your competitors, etc.? Do you want to emphasise your competitiveness based on costs, or rather based on added value (differentiation)?
Meet market requirements.
What prices will customers be willing to pay for your product/service? Determine the value.
Consider your costing structure.
Respect the positioning of your company, and remain compliant with other variables of the marketing mix.
An effective pricing strategy finds the right balance between the bottom price (which is to say, the price at which your company begins to sell at a loss) and the ceiling price (the price no customer would be willing to exceed to buy your product).
Factors affecting price
Although some factors do not determine price directly, they can nevertheless have a significant effect on the latter. It is a good idea to consider them when setting the price of your product. You can "control" certain factors by playing on their cost.
- The following are just some of the factors you can control:
- Setting of the price itself
- Research and development costs
- Production costs
- Advertising and sale costs
- Costs related to training and the internal organisation of your sales team
- Distribution costs or those associated with commercial channels
- The quality of the after sales service
- The factors you cannot control are:
- The price of substitution products (orange juice may be a substitute for cola)
- The price of competing products (same product but distributed by others)
- The customer's budget
- The customer's tastes and preferences
- The cost of raw materials (energy, heating, lighting)
- The economic, legal, and political situation in the country/region where you sell your product