In business, price is one of the most important aspects. Price is the cost that the buyers must pay to exchange for the product or service they want. This will be one of the main considerations by the majority of potential buyers before buying a product or service. Product Price also reflect its quality. Thus, it is necessary to establish a pricing strategy to determine the product price.
According to Chron, you have to understand how pricing affects your business model, not just your bottom line, will help you better choose price levels. Then, how do you determine the price?
Let’s look at a few strategies to determine the price:
Pricing Strategy Based on Costs
Many companies often apply this strategy. Pricing based on costs incurred for the production process and adding a percentage amount to generate profit.
There are categories in pricing based on costs, that is:
a. Cost-Plus Pricing
It is the determination of the selling price per unit by calculating the amount of cost per unit added by some amount as profit or often referred to as margin. The formula is Total Cost + Profit = Selling Price.
b. Mark-up Pricing
Intermediary traders widely use this price-fixing strategy. The formula is Buy Price + MarkUp = Selling Price.
c. Fixed Fee Pricing
The maker will get compensation for a number of costs and get a certain amount of agreed fee. Thus, the prive value of the goods do not affect the value of the fee.
d. Target Pricing, which is pricing based on the desired return on investment (ROI).
Pricing Strategy Based on Demand
Pricing strategy is done with the aim to approach the needs or demands of consumers. This method also passes the price determination process based on consumers’ perceptions of the value received. To find out the value of quality products that can be accepted by consumers is the Price Sensitivity Meter (PSM).
But to respond to various consumers who want a product, it can also discriminate prices. Price discrimination is a policy of determining different selling prices for the same type of goods in a market segment.
Pricing Strategy Based on Competition
Determination of the selling price by considering the selling price that has been or will be determined by a competitor or competitor. There are two methods in determining the selling price, that is perceived value pricing and sealed bid pricing.
Perceived value pricing is the determination of the selling price based on the industry average selling price. Additionally, the sealed bid pricing is the determination of selling price based on bids submitted by competitors. Apart from determining pricing strategies, the internet also has a big influence on choosing the right pricing strategy, by allowing consumers to get adequate information.