We all know that prices matter and should start with nines. Why? It is psychological. Or perhaps not. Customers are expected to spend 99 cents more than $1 for a product. However, customers will most likely hand over a dollar bill to you in both cases and won’t care about the penny they get in exchange. A lot of stores have a small bowl of change right next to the cash register. This indicates that neither customers nor businesses care about the copper coins.
Does pricing matter? Most startups don’t consider pricing a significant concern. Most often, the price shown on the tag is the estimated production cost plus a margin. Or, it may be an amount that seems reasonable after looking at other prices.
Experts who advise about being an entrepreneur and pricing get very little or no attention. They often focus on how to act like an entrepreneur or how to stay motivated. How should entrepreneurs spend their time? It’s not about pricing. There will be zero hits if you search for pricing or price in any how to succeed article.
Although this advice may have different values, pricing is fundamental to your business and essential to an entrepreneur. Pricing is about understanding your customers. Pricing is all about understanding your customer.
If you are looking for the good way to approach pricing, here are four things to think about.
1.How much your customer makes is dependent on the price.
Many people have heard the term “willingness for pay” in economics. This is a useful concept when studying the efficiency and effectiveness of the economic system. It is how to achieve as much as possible with limited resources. A startup can think of the value the customer is expecting from the product differently. This value must be lower than the price. The cost to the customer is your price. They want to maximize profits. A deal they can’t resist is getting a far more significant benefit than they have to pay. A satisfied customer is a customer that makes a profit.
2.The price information is for the customer.
Price is more than just the amount of money that changes hands. It can also be information. It is also information. A high price raises customer expectations about your product, customer service, and so forth. A product that customers expect to be high-priced but are pretty affordable is not a deal. This is why it should be a concern. Imagine a Porsche dealer selling new Carreras starting at $15,000 per unit. Some may be tempted to purchase it. Others will question what’s wrong with these cars and why they cost less than regular sedans. This will cause the Porsche brand to lose its value.
3.Price determines the cost.
Price is determined by what your customers value from the product. Your customers will purchase your product if offered a great deal on value terms (see first point above). Your cost is what the customer cares about most—your job as an entrepreneur is to profit from customers choosing to pay a specific price. You can’t do this if you let the price decide the cost. Entrepreneurs’ primary choice variable is cost.
4.The customer determines the price.
.You can’t set the price; it is yours to find. A high price will decrease sales and profits. But a low price will cause fewer sales. The price must be right. It must be suitable for whom it is being charged. It must be ideal for the customer. The value your customer expects and, therefore, the “profit” you make from your product is what determines the right price. However, they have many options and can choose which product or service makes the most profit. Although you can print any dollar amount you like on the price tag price, it’s not your decision and does not have to be set.
It’s a shame pricing doesn’t get more attention. Pricing is key to your business’ success. It is the story your company tells and the lens through which the customer views your business. It should not be considered an afterthought.