Setting and presenting your price may be the single most important thing to get right in your business. When determining the value of your product or service, keep in mind that pricing low will lower your revenue, introduce a new lower quality customer, and could damage the growth of your business. Low pricing also creates low motivation from you or your team and will often prevent you from going the extra mile for the customer. However, pricing high may give your competition the upper-hand with customers looking to spend less.
How to Price. You should set your price based on the true value of the product or service, which, in addition to the cost of producing any tangible product, includes the cost to cover the tools, software, electricity, employees, etc. In addition, the cost should easily allow you to reach your break-even point. The goal of your price should be to generate sales in excess of 50% above the break-even mark. Never make it a habit of charging your customers based on your lack of knowledge or technology. Your customer should never pay because you don’t know how to do your job properly or efficiently. However, if the customer has a unique problem that involves research and no easy solution, which may include a system hack, training, or simply writing a document or tutorial, you should charge based on the time it takes you to research and resolve the issue. Your customers should not be concerned with the time it takes for you to complete their request. They care about the value you bring. If they believe that you are the best, then your price may not be relevant. If you have tough competition and the customer doesn’t care about the quality you bring, then the price is very important and you will need to also consider the competition and brand reputation when setting prices.
Real vs. Perceived Value. Value pricing attracts value conscious customers. The actual cost of product production determines the real value. In addition, the real value is dependent on the usefulness of the product to the customer as well as the value of the product components. Ultimately, the perceived value is based on how much money the customer believes the product is worth.
For example, in the context of higher education, the perceived value of a college or university among individuals looking to invest in higher education tremendously affects the institution’s price. Students and their families perceive the value of the institution to be within the quality of the education. Consequently, the higher the perceived value of quality, the higher the cost of tuition. Research, however, has not proven correlation between institutional cost and actual quality. Additionally, it was found that perceived value of an institution did correlate with a student’s likelihood of enrollment. Perceived value of an education has three main factors which include, quality, cost, and emotional attachment. Failing to satisfy either of these could jeopardize the student’s enrollment potential as it will affect the student’s perceived value. In marketing, generating excitement can also generate a sale and loyal customers. If a customer is excited about a product, they may ignore the cost and quality factor. If an individual truly believes in the quality and value of a product or service, then the perceived value becomes more valuable than the real value.
Dr. Elijah Clark (June 14, 2023). Setting Your Price [Web log post]. Retrieved from https://elijahclark.com/setting-your-price/