What is the best way to set the price of your product or service? it all depends on what value you want the product to have. There are a some steps to be followed, in order to reach the strategic pricing objective.
Strategic pricing process
- Set strategic pricing objective
What should be the objective? You could use the positioning process below to understand competitor-oriented pricing and customer-oriented pricing. Cost-oriented pricing takes in to consideration the manufacturing, distribution, promotion and service costs and adds a margin.
- Estimate demand and price elasticity demand
What is the likely demand from your target segment? If the price goes up, would they still buy or is the demand likely to drop?
- Determine costs and their relationship to price
Is it a large difference in manufacturing 1000 or 100.000 items? What is the marginal product? How many items would you need to sell in order to contribute to fixed costs?
- Examine competitors prices and costs
Using the positioning process below or simply looking at how competitors price their similar products is called benchmarking and is very common.
- Select a method for calculating price
How should the price be calculated? As above customer-oriented, competitor-oriented or cost-oriented. What should be taken in the calculation?
- Set a price level
- Adapt price structure to meet variations in demand and cost across geographic territories, market segments etc.
Each market may be different with it’s own environment, culture, political climate, industry and marketing mix. The price process needs to be gone thru for each market in order to stay competitive.
- Identify relevant set of competitive brands
What other brands is a direct competitor to the product?
- Identify set of determinant attributes
What makes the customers buy the product? What benefits does the customer get?
- Collect information
Gather all information from the research.
- Determine brands current location (position)
Look at the brands position compared to competitors
- Determine preferred combination of determining attributes
What is the best combination of the attributes? A balance must be reached since it can’t just serve all needs.
- Examine fit of the product
Where does the product fit the best? What wants does it seek to satisfy?
- Write positioning statement to help guide development and implementation of marketing strategies