How To Set The Best Price for Your Product and Service

The price of a product should be of utmost importance to a business person, especially because it is the element that generate income for the business concern. If you price too high, turnover may be low. If you price too low, you will incur heavy losses and, eventually, may have to close shop! How then can one determine the appropriate price? What are the factors that one must put into consideration when pricing one’s goods or services? Let us consider the following factors:

COSTS: All variable and fixed costs associated with the production of a product (be it a good or service) must be put into consideration before a price is attached to such a product. Such costs include raw materials, electricity, transportation, packaging, etc.

COMPETITION: A very important thing to consider before one sets the price of one’s good/services is the price that other key competitors in the market are charging. This helps business people to charge prices that are market friendly and competitive.

COMPANY OBJECTIVES: The goals that a company wishes to achieve within a specific period goes a long way in determining the prices that are placed on the company’s products. For example, if a company’s main objective is profit maximisation, it will not be out of place to charge high prices. Also, companies that intend to position themselves very high in the market, use high prices as a signal of market leadership and quality.

ENVIRONMENTAL FACTORS: Legal restraints and government policies are typical environmental factors that business people must consider when they set prices. Sometimes, these environmental factors may set a limit or range (through price control boards) within which businesses may set prices for their products. The telecoms industry is an example.

THE MARKET: If you charge a price that is so high such that your customers cannot afford, or worse still, are unwilling to pay, you will not achieve your pricing objectives. The customer is the element that supplies the funds with which your products will be purchased. This simply means that one must take their ‘pocket’ into account when setting prices. (This is a key reason why business people segment their markets, thereby providing different grades of the same product so that all segments of the market are fully served)

The big question is this: “how do you price your products”? What are the things you consider before you set a price for your goods and services? What do you regard as most important? Please share your comments below.                         -(Credit: Muyiwa Afolabi)