Pricing for small businesses can be a bit tricky.
From deciding what prices to peg your products at, to a strategy that will earn you adequate returns, how can your small business navigate pricing?
In this post, you’ll find everything you need to know about pricing as a small business.
Product pricing is one of the most important decisions you’ll ever make as a business owner. Pricing must be a calculated and informed choice in which some necessary factors must be considered.
Factors That Affect Pricing
1. Production and distribution costs.
For example, if you run a bakery or a Ready-To-Wear business, you are directly involved in the process of gathering raw materials to produce your goods, as opposed to a retail store owner.
When fixing the price for your product, you must factor in production costs per unit. You can’t fix your price just based on what your competition is selling at, or at prevalent market rates.
2. Competition.
Small businesses make up 90% of Nigeria’s workforce.
This means that you will always have competition and that will affect many of your business decisions including pricing. If your prices are higher than what your competition offers, then you will struggle with sales.
Customers want value at a cheaper/affordable rate. If they can get that somewhere else, then why bother with your business?
3. Target Audience.
Your target audience largely determines your price point. If your businesses’ target audience is university students, you have to consider average allowances across board. This information will help you better price your products for your target audience.
4. Profit Margin
Ultimately, your small business is in business to make a profit.
While you can’t top your prices with outrageous amounts just to make a profit, you must consider it while fixing prices. If you underprice, you’ll be running at a loss or a break-even. If you overprice, you’ll struggle with sales.
Now that we’ve established what factors to consider when pricing, here are some pricing strategies you will find helpful for your small business.
Pricing Strategies for Small Businesses
1. Pricing for market penetration.
This strategy is quite successful for new businesses in the market. In this pricing strategy, you peg your prices lower than what your competition offers only for a short period. Your business may run at a breakeven or a loss during that time. This strategy is best for new businesses coming into a market as it is not sustainable in the long run.
2. Psychological Pricing
There’s a reason people think Shoprite is fairly priced.
And it has to do with the #1999.99 price tag as opposed to #2000 they see when they go shopping. The simple idea that you’re saving an extra kobo by doing your shopping there is enough to trigger an emotional purchase rather than a logical one.
Another way to practice psychological pricing is by leaving your prices constant while your competitors increase theirs. By leaving your price constant, and reducing quantity, you are playing on people’s emotional response to purchase your product over the competition’s.
3. Bundle Pricing
In this strategy, you pair a bundle of products together. This pair could be a fast-selling and a slow-selling product. You sell the bundle at a cheaper price than what the customer would have paid if the products were purchased individually.
This strategy helps give your customer a perceived sense of value as they think they’re getting more for less. If you’re looking to introduce a new product, or clear out business inventory, this strategy is something to consider.
4. Promotional Pricing
This strategy is effective in driving sales. In this strategy, a new or existing product or service is sold by offering discounts, attaching a freebie, or offering a buy one and get one free deal, etc.
This strategy works best with a deadline or offering a limited stock. It motivates buyers to act fast by playing on their fear of missing out.
These pricing strategies are more effective and profit-oriented for small businesses like yours.
You don’t have to stumble around pricing for your small business. With these factors and strategies, you can choose the best prices for your business.