Understand the Purpose of Determining the Selling Price of a Product and the Components of Determining the Selling Price of a Product

Selling Price of a Product

The determination of the selling price is an important decision in business. Because the selling price will have a big influence on the product or service marketing strategy. Then, how do you determine the right selling price? The answer is in this article.
What will you learn from this guide?

  • First, the reason why science determines the selling price is important.
  • Second, the components that determine the selling price of the product or service.
  • Third, understand the purpose of determining the selling price.
  • Finally, the beginner's mistake in determining the selling price.

If you want to be able to determine a good selling price, you'll be sure to love the handy guide in this article. Let's get started!

Knowing How to Set a Selling Price

The sale price is actually formed from the comparison price and value.

  • Price is how much money consumers have to spend.
  • Value is how much benefit consumers receive.

So, that way, learning how to determine the selling price is like weighing the value you sell for the price you love. As simple as that!
Let's dive deeper into consumer psychology. There are usually 2 scenarios when buying and selling:

  • First, this product or service is too expensive. I don't want to buy. In this scenario, consumers actually feel the value they get is less than the price they pay.
  • Second, this product or service is cheap. I want to buy. In this scenario, consumers actually feel the value they get is greater than the price they pay.

After all, then the selling price is not tied (fixed) to a nominal amount, isn't it? Exactly, there are times when a $100 / $ 1.000 product or service is cheap. And there are times when a product with a price of $ 1 is expensive. All perceptions of expensive and cheap are formed from the comparison of value vs price. 

Note: Focus on added value, communicate to consumers, and BOOM !, your sales increase.
At this point, understand?
So, what's the point in learning how to set a selling price? Why entrepreneurs should always be aware of value vs price?

  • First, you can sell your product or service with maximum profit. So, your business will make a big profit.
  • Second, you can define an efficient marketing strategy to communicate value to the right consumers.
  • Third, you can increase the number of sales significantly.
  • Finally, you can build a branding image of the products or services that you manage.

Components to determine the selling price of products and services

When a novice entrepreneur has come to the discussion about selling prices, he suddenly gets a headache. He is confused about the price of his product or service.

  • Is the selling price too cheap?
  • Is the selling price too expensive?
  • Will this selling price be sold in the market?

Entrepreneurs are not gamblers, so don't overly assume. Learn to calculate the components that determine the selling price. After that, calculate the value of your product or service. And finally, test your assumptions by selling to consumers.

Components of Product Selling Price Determination

For the internal components of the product sale price, I usually enter these 4 things:

  1. Raw material prices.
  2. Production costs.
  3. Packaging costs.
  4. Management fee.

For the external component of the product sale price, I added these 3 things:

  1. The purchasing power of consumers.
  2. Consumer behavior.
  3. Competitors.

Where do advertising costs go? Well, in my opinion, advertising is an investment to build branding. So, I don't include these costs in the selling price of the product. Because if my product branding is good, the value I communicate will reach consumers. That way, consumers will not protest if I increase the selling price of the product.

Components of Service Selling Price Determination

For the internal component of the selling price for services, I usually include these 2 things:

  1. Value base on the result. How much profit can I make for the client?
  2. Positioning. What level of service do I belong to? Beginner, expert, specialist, or celebrity authority? The higher your skill, the higher the selling price for your services.

For the external component of the selling price, I usually add these 3 things:

  1. The purchasing power of consumers.
  2. Consumer behavior.
  3. Similar competitors.

These services include intangible products (products without a form). So, you can increase the selling price by up to 200%. Consider the positioning, supply & demand, and the values you have.

Understand the Purpose of Determining the Selling Price of a Product

Before discussing how to set prices, it's a good idea to first know what goals we want to achieve by pricing these products. In general, there are 4 goals that give the price of the products we sell.

1. To Make A Profit

This goal is of course to increase the product price to the highest or most expensive level. However, in its application, it must be limited to the target profit so that our products are not too expensive for consumers.

2. To Enlarge Sales Figures

The same is the case with the first goal, but the second one focuses more on the size of the product sold. Generally, the price set for the product will be cheaper than if it is oriented to the first goal.

3. To Increase Pamor

For this third purpose, generally, the price will be cheaper in order to attract customers. If the price is cheap, consumers will think that our products are very affordable.

4. To Maintain Price Stability

This price-setting also aims to make our product prices stable with product prices in general on the market.

Beginner Mistakes in Determining Selling Prices

When I started my business, I was a person who was blind to value vs price, consumer behavior, and competitors. I don't even have a business plan. I can't do a SWOT analysis ( strengths, weaknesses, opportunities, threats ). And finally, I set the selling price at random.
Threats anyway! I only focus on narrow thoughts, namely: sell cheap, sell a lot, just sell!  Luckily I met the right business mentor. And he opened my horizons on how to determine the correct selling price.
As my gratitude, I will share 3 mistakes I have made in determining the selling price. Hopefully, you don't repeat the mistakes as I did.

1. Do not know the Value Value of the goods or services you are selling

My first mistake is not knowing the value of the product or service I'm selling. This leads me to consumers who are inaccurate and uneducated.
So, even if there is a sale, my margin is small. And again, I got a lot of disloyal customers. Are you dizzy? Hehe.

2. Not Doing Market Research and Consumer Behavior Correctly

The second mistake I made was determining the selling price without market research, without monitoring market prices, and not researching consumer behavior first.
Anyway, I just sell, sell, sell. Cheap, cheap, cheap. Until finally I got tired of myself. How about profit? Gosh, the profits are really thin.
After that, I learned more about market research and consumer behavior. And in the end back to the topic of value vs price and sales psychology. Starting from there, I just understood the external factors that determine the selling price, for example:

  1. The purchasing power of consumers.
  2. Consumer behavior.
  3. Similar competitors.
  4. Added value

3. Do not want to bother thinking about profit, finally, all product margins are flat

The third mistake I made as a budding entrepreneur was determining product margins in a flat manner. So, I don't think about product scarcity, product value, and market price considerations.
In essence, I take the same margin percentage for all products. So, for example, if I take a 30% profit, yes, all my products are equalized with a margin of 30%.
Handy right? Yes, it is. Hahaha. In the end, my business could not grow. I was dragged into unhealthy competition. Prices of goods in the market are also increasingly erratic.
Note: Those are the three mistakes I've ever made. Take it as a lesson and don't repeat the same mistakes.

Conclusion

Thus the discussion of how to determine the selling price of products and services. All guides are flexible and non-binding. You can use one of them or combine several techniques into one (hybrid).
What about me? If I like the technique of price to time, price to positioning, price to packages, and price to value. Sometimes I use these techniques individually, sometimes, I combine them. Depending on the situation and conditions of sale.
Finally, which way are you currently using to determine the selling price? Write your opinion in the comments column now.

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