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How do we price a product or service?

Reading time: 2 minutes

The main purpose of any commercial transaction is usually to obtain a certain amount of money. To this end, all products and services are defined with a price, which is equal to the monetary value of the profit received.

Among the main characteristics of the price, we find that it is a competitive instrument within the market, which provides income to the seller and, in many cases, is the only information available to the buyer before the purchase.

Anyone who has ever offered a product or service knows how difficult it is to set a good price for what it presents. That's why we're going to give you some of the ways that marketing defines as pricing methods.

To begin with, we find cost-based systems, which in turn are also divided into two methods: the first is based on the total cost of a unit of product, to which the profit margin is added; and the second is based on the target price, setting the price taking into account profits and a sales volume already provided.

On the other hand, the prices of a product or service can also be set taking into account the competition, determining a similar price, unless what you offer has an advantage or disadvantage over your rivals, so you set your price according to the qualities added or subtracted.

Finally, if we take into account the variations in demand and the psychological consequences of prices in the market, we are faced with the method based on the sensitivity of demand.

Based on these methods we can talk about a series of pricing strategies, these are

  • Price differentials, those who try to use the similarity between consumers to increase sales and therefore profits. That is, they charge a different price for the same product or service, depending on who the consumer is.
  • Psychological pricing strategies, which are based on the way the market distinguishes between different prices and on the way the consumer himself relates these to the qualities of the product or service.
  • Price strategies for new products, where we can differentiate three different types:
    • Penetration price: a low price is used from the launch of the product or service.
    • selection price: these are the cases in which the brand launches a product or service at a high price, since this means a more exclusive target.
    • skimming price: it starts with a higher price, which is progressively reduced to reach new customers.
  • Competitive strategies, those fixed depending, directly, on the competition and on your product or service with respect to theirs, taking into account the advantages and/or disadvantages.
  • Strategies for product lines, taking into account the total benefits of the line, isolating the benefits of each of the component products.

As you can see, not only do you need a quality product, but you also need a good strategy to be able to compete in an increasingly globalised market.