Selling Products: How to Address Pricing Objectives

by Emily Retherford

2 min read

The appropriate pricing of products helps ensure your business’s profitability, but it isn’t always easy to get this right. The price you set for a product influences the perceived value of the item. Customers often look at a $50 pair of jeans and assume they’re of better quality than a $20 pair, so it isn’t a good idea to set rock-bottom prices and expect to gain customers. Setting correct prices is one of the most important decisions you can make, and there are a few pricing objectives and strategies that can help you.

Making a Profit

There’s usually a fine line between how much you can manufacture your product for and the price you can sell it for a profit. It’s important to know what this amount is before you place your products for sale and to help take the stress out of pricing your products. Calculate the break-even product on every item. Tally overhead costs, marketing expenses, and sales. You want to price your products high enough to make a profit without scaring customers away. To do this, take a look at what competitors are charging for similar items. Perform market research. If you introduce your products with a pricing point that’s too low or below market value or higher than what customers feel they should pay, you won’t maximize profits.

Survival

Survival pricing is meant to be a short-term pricing objective and strategy. One you know your break-even point, you can set prices as low as possible so you can create sales while still maintaining a profit. This type of pricing is ideal for promotions and flash sales and should only be used to get through tough times. Once the situation improves, prices should return to normal or at least return to a competitive value.

Drive Sales

Sales growth objectives are designed to increase sales volumes and profits. Companies often believe if sales increase, so do the profits. This can be achieved by lowering prices slightly below that of the competition. Sales pricing is a temporary strategy. It’s often seen as a method to increase market share, but the two don’t always depend on one another. Driving sales is also a way to survive during rough times.

Increase Market Share

Market-share pricing focuses on securing a large share of the market rather than making a profit. Some companies may price products so low that they lose money, so it definitely isn’t a good idea to use this strategy when you’re trying to get through a lull in customer traffic. Because market share is often associated with profitability, many companies seek to increase their market share in hopes of sales growth. This can be achieved through promotions, improved advertising, and adding new channels of distribution. It can also be achieved by refining product value.

Impact a Company’s Image

Producing high-quality products positions your company as a product-quality leader. By charging more, your company convinces the consumer that it’s worth it due to past-product experiences. On the flip side, if you constantly offer bottom-dollar pricing, you position your company as a bargain leader. Pricing strategies help determine whether a customer will purchase your products. Instead of choosing one strategy, it’s best to employ several to maximize profits.

References & Resources

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