Even though it is a long-established tenet of conventional economists that the price charged for a product, which includes overhead expenses, is based on supply and demand, this is not always the case. As far as most businesses are concerned, it is not the number of customers, but the kind of customer that is the determining factor of the price of a product or service.
Generally, by bringing about a change in the price it only changes the type of customers who will buy your product or service. If you do not provide what your customer wants, no matter how low you price your product or service, you will not get him or her to buy it. Conversely, by providing for their needs, even if you price your product or service high, you will get many customers.
How you price your goods or service often tells customers what to expect from you. When something is priced low it implies that the customer will not be served and that they will not have the benefit of returns or refunds. If your business is about providing services, this can imply inexperience and amateurism, or, that you are just starting out. Opposite impressions are usually created when you price your goods or services high.
However, you will have to provide additional value if your price is above the market price for businesses that are similar, in order to justify your pricing with your customers. Customers generally base their judgment according to the kind of value they are looking for and will choose to buy your product or service because you either exceed or at the least meet what they expect.
The price of a product or service is usually subjective. What you charge should be enough to make it worthwhile for you to do the job, yet you cannot price your service or product so much that potential customers will be put off. Especially where small businesses are concerned, it is the quality and not the price that is of importance to customers.
For example, a customer would rather pay a higher price to a beautician she knows provides a higher quality of services, than pay a lower price to someone she does not know. Unless you charge an outrageous amount, customers will usually not be scared away if your prices are on the higher end.
Therefore, you need to keep in mind three fundamental rules when pricing your products and services:
- The reasons for pricing a product or service should be easily understood
- The pricing ought to be complete
- You should provide the customer a number of reasonable options in prices
Apart from your customer understanding why you are charging a certain price, you should also make it clear that there are no surprises. For example, there are often “On Sale” ads that proclaim that a computer is available at just $599 (monitor and keyboard not included). Charging for every component is a ploy used by many businesses to actually try and earn more money. Customers are usually put off by such tactics. Most customers would rather buy a computer being sold at $999 with the monitor and keyboard included and there are no hidden costs.
And finally, your customers should have several options of prices. While it is indeed true that you ought to sell a product along with all of its components and be straightforward about the minimum parts that are required for it to be usable, by breaking down a system into parts that are interchangeable offers your customers a number of options in pricing. You will have to decide which strategy works best for both you and your prospective customers.