Setting a price
When a business is setting the price of a product or service, it needs to consider the following:
- competition – Should a business follow the lead of its competitors when it comes to pricing or adopt its own pricing strategy?
- quality – Does the product reflect its price?
- image – In what ways will the price of a product affect a customer’s perception of it?
- production cost – How will the cost of making the product be reflected in the price?
- profit per unit – How much money should a business try to make compared to the cost of each individual product?
- what the customer is willing to pay – The cost that customer is willing to meet to obtain the product which may be impacted by the extent of their need/want and the availability of alternatives. Customers may pay more for products from a local convenience store rather from a nearby supermarket. This may be due to time constraints.
Price is always linked to value. Customers will look at a product and think “Is it worth that?”
To ensure they have an appropriate price, businesses may conduct market research to find the best price for their intended market.
How businesses will use price as a way to attract customers has resulted in several pricing strategies. They are divided into two:
- long term pricing strategies
- short term pricing strategies
