product pricing

Product Pricing : How to Price your products :: Part 1

One of the most exciting and nerve-wracking aspects of retail is determining what price to sell your products at. Pricing is both an art and a science that requires an experimental attitude coupled with an intuitive feel for how you want your brand and by extension your products to be perceived.

Definition: To establish a selling price for a product.

No matter what type of product you sell, the price you charge your customers or clients will have a direct effect on the success of your business. Though pricing strategies can be complex, the basic rules of pricing are straightforward:

  • All prices must cover costs and profits.
  • The most effective way to lower prices is to lower costs.
  • Review prices frequently to assure that they reflect the dynamics of cost, market demand, response to the competition, and profit objectives.
  • Prices must be established to assure sales.
    Set the pricing objective
      • This is one of the most important steps.
      • Setting a low price might attract more customers and fetch a larger market share for the product while a higher product price may reflect on the quality of the product.
    Decide the demand for the product
      • The demand for the product on all marketplaces is a factor that sets a ‘ceiling price’.
      • Make use of “penetration pricing” strategy when the product has a highly elastic demand and there is strong competition for the product in the market.
      • This policy is generally followed during the initial stages of introduction of a new product.
      • Under this policy, prices are fixed below the competitive level in order to obtain a larger share of the market. Once the product is in demand or is accepted in the market, the price can be increased.
      • But when the demand for the product with respect to price is more inelastic, higher prices are charged for the product.
    Estimate costs and profits
      • The amount spent and expected return is a key factor in deciding the price.
      • The various costs involved in producing the product must be covered in pricing the product.
    Identify competitors
      • All possible competitors for the product and the policies they follow are important factors.
      • If a case arises where the product is similar to the products sold by competitors, using competitive pricing is the best option.

  • A Simple Formula

    Most retailers benchmark their pricing decisions using keystone pricing (explained below), which is essentially doubling the cost of the product to arrive at a 50% markup. However, in many instances you’ll want to mark-up your products lower or higher depending on your specific situation.

    Here is an easy formula to help you calculate your retail selling price:

    Retail Price = [(cost of item) ÷ (100 – markup percentage)] x 100

    So for example, say you wanted to price a product that costs you $15 at a 45% markup instead of the usual 50%, here’s how you would calculate your retail price.

    Retail Price = [(15.00) ÷ (100 – 45)] x 100

    Retail Price = [(15.00 ÷ 55)] x 100 = $27.00

    Now that we’ve covered how to successfully markup your products, below you’ll find nine pricing strategies that are traditionally deployed by retailers to stay afloat and one step ahead of their competitors.

  • Source:

Leave a Reply

Your email address will not be published.