How to price your product? Here are 4 ways

Price is an important means of competition. Pricing is a critical component of the marketing mix. Price is often an important factor affecting the success or failure of a transaction, but it is also the most difficult factor to determine in the marketing mix. So how do entrepreneurs correctly price their products?

1. BOM Pricing

BOM stands for Bill of Materials. BOM pricing refers to the pricing method based on the BOM price. The BOM price is the basis for setting the product sales price. To put it simply, it is the product cost price.

Product price = BOM price * (1 + gross profit assessment)

(BOM price disclosed at LeEco mobile phone launch conference)

Most hardware manufacturers use BOM pricing because their product costs and gross profit assessment indicators are relatively stable. For many companies, calculating costs is simply a matter of setting prices. Cost calculation is an important step in the pricing process, but it is not enough. The cost of marketing your product or service tells you only the lowest price you can sell it for, but it doesn’t tell you the right price.

2. Nine-grid pricing

Based on the two dimensions of product quality and price, existing products are placed in a matrix. High quality-low price, medium quality-low price, and high quality-medium price are three ideal pricing methods. Products should avoid fighting each other due to similar positioning.

(Product quality-price matrix diagram)

3. Pricing based on competitive products

Whether a product is competitive in the market depends largely on whether it can stand out from its competitors, with price being the most prominent feature. Take mobile phones as an example: as soon as a mobile phone manufacturer launches a new model of mobile phone, similar comparison pictures will circulate on the Internet. For manufacturers, they will definitely fully compare similarly positioned products from competitors and adjust pricing based on the comparison.

(Comparison chart of competing products circulating on the Internet)

4. User-based pricing

Ultimately, it is the users who pay for the products. In a buyer's market, users have a decisive influence on the price of the products. Therefore, product managers need to understand users’ expectations of price.

At this point, there are two important issues to consider:

1. The upper limit of user price tolerance;
2. The user's price tolerance limit .

Price Sensitivity Meter (PSM) is an important method to study user expected prices. PSM measures customer satisfaction and acceptance of different prices and conducts testing and research to understand what customers consider to be appropriate product prices. It can provide important reference for customers to determine the appropriate price of products/services by drawing price trend charts, bubble charts, normal distribution charts, etc.

(Price Sensitivity Test PSM)

Final Thoughts

The above are several common pricing methods. Of course, there are other pricing models, such as skimming pricing strategy , penetration pricing strategy, etc., but these are all pricing strategies, which are slightly different from pricing methods, so they are not discussed here.

Generally speaking, product pricing requires consideration of many factors, which requires the integration of multiple pricing methods. But there are also manufacturers that do not follow common sense, such as Xiaomi's pricing strategy:

Same price, unrivaled functionality.

Same functions, but the price is unmatched in the market.

When you meet such an opponent, I can only say - my friend, you have chosen the wrong career.

Author: Wuzhihong , authorized to publish by Qinggua Media .

Source: Ignorance Red