Smart "price pointing" is the way to rack up strong profits

Price points are prices where the demand for a given product is supposed to stay relatively high.

The term “price point” is used in several related ways in the world of economics. All of the uses revolve around the retail price which is charged for an item and the way that consumers interact with this price. Some people refer specifically to the retail price as the “price point,” that is an example of a common usage of this word. Understanding how price points work is critical for companies which manufacture goods for retail sale, and for retailers who handle such products.

There are two major concerns when it comes to pricing. The first is to ensure you are actually making a profit, and the second is in regards to where you stand compared with your competition (i.e. your position in the market.

Ideally, a retailer wants to hit the point of perfect balance, where consumers view a price as fair and expected, and demand for a product continues to remain consistent. If a price point is too high, demand can slacken, leading to fewer units sold, and eventually pushing the margin enough that the company would have made more money at the lower price. Low prices can drive demand higher, creating profits on volume, rather than on individual items, a tactic used by bulk and discount retailers.

Discover The Value Of Your Service

Value is very different to cost. Cost is the monetary sum that must be paid for each sale of the product. Value is more subjective, it is what the customer "feels" the product is worth. The Business Minder can help you to discover the optimum value of your product.

There are a number of things about price points which are interesting from a psychological perspective. Consumers appear to be more drawn to prices which end in odd numbers, and as many people know, prices which end in .95 or .99 tend to be viewed as more appealing. A smart company or retailer will set a price which ends in one of these numbers rather than going for a neat, whole number, because people perceive greater savings with these prices, even if that isn't really the case.

Standardised price points are also used to avoid distracting consumers. Rather than marking things up strictly by percentage, for example, many retailers aim for a price which appeals to consumers, adding or subtracting from the markup slightly to get there.

You have to know your numbers. I know this sounds trivial, but you must set the good habit now.

Researchers have also learned that changes in a price point can change the way that consumers view a product. If consumers are accustomed to paying a set amount, they will view that amount as the fair price. When the cost rises, consumers will feel like they are being taken advantage of, and they will express dissatisfaction, even if the rise is perfectly within the bounds of inflation and rising materials costs. If prices are lowered, a company will have trouble raising them back to the prior level because consumers associate the new price point with the best and fairest value.

Picking a good start price is a major decision for any business. Of course, they ensure they cover all their costs as a minimum, but finding the right price point is always down to a lot of trial and error and as always, a little luck.

Pricing is not an exact science, it never has been and never will be. Too many external factors influence pricing and that is why firms can spend months trying to figure the right price point before launch.

The price point where you make the most money

The higher priced your product, the less you will sell, but that in itself does not tell us anything interesting. You should look at competitors for a good idea of general pricing, but we can only find the true value of our own product by using some cool tools and techniques. Here are three and you can call me to discuss the details of each

1. Pre-Launch Pricing

2. Price Skimming

3. Rising Price

These are three preferred strategies for finding a good price point. The key with pre-launch pricing and the rising price model is to try it in a select environment before you hit your big lists for launch announcements. The Skimming model is perhaps ideally used when you are well known.

If you have never thought about pricing then I strongly suggest you do. You should know all the important numbers in your business, and many of those numbers should influence your pricing strategies. The Business Minder Group is helping skilled and seasoned business people to grow their business.