Friday, March 25, 2011

How to Price 5 Methods to Set Price

Considering that you have already factored in the costs, your competitor and the customer, a question still begs in your mind, of, how to price.
How do you set price for your product or service?
You can select one of the five price setting methods that we will discuss, namely; 
Mark-up pricing
 Target-return pricing
 Perceived-value pricing
 Value-pricing
 Going-rate pricing.
Mark-up pricing. This is the most basic way to set price. You add a standard mark up to the products cost. As a manufacturer, assume you want to earn a 20 percent mark up on sales, estimate the total cost (fixed & variable) of production and then add a standard mark up of 20 percent for profit.
 Target-return pricing. You begin by deciding what rate of return you want from your investment. Say your target rate of return on investment is to achieve 15 to 20 percent ROI, start by determining a price that would yield to this target. This pricing method works on condition that the cost and estimated sales turn out to be accurate.
 Perceived-value pricing. In this method you base your price on the customer’s perceived value. You must deliver on the value promised by the value proposition and the customer must perceive this value. Other marketing mix elements like advertising, sales force should be, used to communicate and enhance the perceived value in the buyers mind. The key to perceived value pricing is to deliver more value than your competitor and to demonstrate this to the buyer.
 Value-pricing is where you charge a fairly low price for a high quality offering. To use value pricing, re-engineer your business operations to become a low cost producer without sacrificing quality and then lower pricing to attract a large number of value conscious customers.
 Going-rate pricing you base your price on your competitor’s prices. You may charge more, the same or less than the major competitors. This method is popular where it is difficult to measure cost or judge competitive responses.

If you have additional methods on how to set price, share them below in the comments section

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