Understanding how to price your new products in the market is the foundation for your business to thrive. Check out these expert tips.
The excitement of adding a new product to your inventory can quickly be overshadowed by the worry of knowing exactly what price you should price your products at.
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If you set a price that is too high, you risk foreclosing yourself from the market and therefore not making any sales. If you set the price too low, your target audience may see your product as too cheap to be of good quality - and you still won't make any sales.
How to price a new product in the market (2022)
Otherwise, you can make many sales, but a paltry profit that will not allow you to maintain your business!
Pricing your products is all about striking a balance, but of course, that's often easier said than done. Understanding how to price your products is the foundation for your business to thrive.
There is no magic formula for setting the price of your products, as it depends on several factors:
- Your product
- Your production costs and professional expenses
- Your target market
- Your income goals
- The prices of your competitors
Each company will have different responses to these key factors, but even then there is more to pricing your products than numbers. In fact, processing the numbers is probably the easiest part of the whole process.
In theory, calculating the price of your product is very easy, as it is a very simple equation based on your desired profit margin (your selling price minus your costs):
- What profit do you want to make? Let's say €5 per unit sold
- What are the total costs and expenses of your product? Let's say €20 per unit
- Break-even selling price: €20 (your total spend)
- Selling cost to make a profit of €5 per unit: €25
You need to understand that the price of your product is what will make your business live and therefore a decent profit is essential. If you are loss-making or if you are unable to break even, the development of your business will be long and difficult.
So, in theory, you will price your product by taking into account the desired profit. But how do you know that you can price your product at, say, $25, and it will sell smoothly at that price?
You don't know. Not without considering all the other factors that come into play when deciding the price of your products.
But before deciding on your product pricing strategy – and there are several – there is one super important point that you need to consider first using information readily available to you for free.
How much is your target customer willing to spend on your product?
You should never attempt to price your products without first conducting market research. Yes, it can take time, but it's a worthwhile step because understanding the price your target market is willing to pay for your product is key.
- First, use your competitors' prices as a starting point to gauge the market. You must choose similar products to get an accurate comparison.
- Then conduct an informal poll or survey via email or social media asking people what price range they would be willing to pay for the product (hypothetically).
- You can even commission a third-party agency to collect this type of market data for you.
The information you seek when pricing your products is an idea of what the majority of your target audience expects to pay for your product.
During your research, it's likely that the price you'll get may fall within a wide range, but this gives you some starting parameters to work with, and you can use this information to help with your product pricing strategy.
In fact, whatever pricing strategy you use, as long as it falls within the parameters you've researched, it's worth trying out.
Don't forget that your final price is not fixed! Just because you launch a product at a certain price doesn't mean you shouldn't change it - in fact, you're likely to have to make adjustments based on customer demand, fluctuating fees or expenses, and, of course, the behavior of your competitors.
To stay on top of your product pricing game, you need to closely monitor your customers' buying habits and be prepared to change your prices if necessary.
So, once you have determined your pricing parameters from your initial market research, how should you price your product?
How to price a new product (2022) | 5 things to consider
1. Know where the market is going
Do you regularly check industry news, read white papers, follow market trends, and the introduction of new or improved products?
If you don't, how are you going to spot trends that may impact future demand or sales for your product – and, ultimately, your prices?
A change in the market is one of the main factors that can prompt you to change your price. For example, if your product is seasonal, like summer clothing, a bad weather season will influence sales – and prices.
If you are in the beauty niche and a specific ingredient or product is subject to new regulations, you may have a limited time to clear current stock.
If your product is not environmentally friendly, you may need to change its price to meet the ever-changing needs of the environmentally-conscious public.
Factors will always vary greatly from niche to niche, so it's essential to be on the lookout and change your prices based on informed decisions stemming from current market trends.
2. Watch your prices
You not only need to monitor the market and know where it is going, but also the prices of your products on an individual basis. In other words, on a case-by-case basis, is each of your products profitable? This is different from looking at your profitability as a business as a whole.
Remember that your revenue target - part of how you determine your profit - must be met by all products, not just one or two top-selling products.
Monitoring your competitors' prices is the easiest way to stay informed of price fluctuations, which will help you determine the price of your products.
It is not necessary to monitor them every day, but it is enough to carry out some necessary checks once a week to spot any significant price changes and study the reasons for them.
You should also regularly ask your customers to give you feedback on your prices. Send an email inviting them to take a poll or survey in exchange for a voucher or other incentive.
The opinion of your real customers matters, because they have already invested in your product. Plus, you show that you genuinely care about your business, your reputation, and your customers.
3. Increase your prices regularly
Let's say you've set your price, you're keeping up to date with your competitors, you're aware of new products in the market, and your product is selling at a steady rate.
Should you raise your price - or is it a risky move?
The straight answer is that you should never be afraid to test new prices, new offers, or new combinations (such as bundles - we'll get to that soon) that might help you sell more products and ultimately account, for an increase in your profits.
It's likely that at some point in your business you'll have to raise your prices anyway because if you don't, you're not running your business with the future really in mind.
So raise your prices and test new offers every month and watch for any increase or decrease in generated orders. You'll see a fairly quick reaction in both cases, but interestingly, price increases are more easily accepted during good economic times!
What's really interesting is that if you see your competitors increasing their prices at the same time as yours, you know you've made a positive change that works!
If a particular price or offer isn't working, don't panic, just try something new. Constantly testing and monitoring your business is key to staying competitive in your niche, but also to earning the profits you deserve.
Tip: Don't alienate your customers by suddenly raising your prices overnight. Take small increments over a period of time rather than leaps and bounds. It's less visible, doesn't scare away customers, and is more easily accepted!
4. Only lower your prices when necessary
Lowering prices is generally not a good strategy - unless it is done for strategic reasons. For example, maybe you want to try to grab market share quickly, and having a super competitive price will allow you to do that.
Maybe your competitors have all lowered their prices and you're just following suit - which doesn't necessarily mean you should.
You may have excess inventory to clear or a discontinued line. These are all legitimate reasons why you may think you need to lower your prices.
The practice of raising your prices and testing different offers will not always be successful. If you price too high, you might miss your target audience, but that doesn't necessarily mean you should automatically lower your price at the origin.
On the contrary, keep your price high, but add something free to entice consumers to try your product. It also helps to generate interest in your product and, of course, in your market.
Everyone likes to get something for nothing, so by adding a free item, your customer feels like they're getting more value for the higher price they're paying - and they're not that worried about paying it. !
5. Use the bundle pricing strategy
Bundles happen all the time, right under your nose, but you probably don't recognize them as such.
This is the grouped sale of several products at a single price. For example, a pack of three t-shirts, five pairs of socks, and two pillows.
Or related products like a brush and comb set, shampoo and conditioner, and sometimes complementary products like a purse and purse or a laptop console with a game.
A study found that related product bundles can help products sell better - and you can use this strategy to increase your price based on "perceived value".
Perceived value is simply customers' evaluation of a product or service compared to similar products.
When a customer feels they are getting value, they are less likely to worry about the price. So you can bundle multiple products and set your price accordingly – often higher than your competitors – and still make sales.
The other benefit is that you are then offering something unique, which makes it harder for buyers to compare prices with each other.
Extra tip: Don't forget to regularly reassess your costs! To be able to price and sell at a profit, you need to buy your stock at the right price. If you're having trouble selling at an acceptable profit, consider negotiating with your supplier for a bigger margin, or look at the other costs and fees that go into your breakeven price. If you can reduce them, you will have more leeway in determining the price of your products.
Conclusion
Understanding your market, and then testing that market, is key to learning how to price your products to enable sustainable business growth. By pricing your products thoughtfully and adjusting them regularly, you will discover the price that converts best. Optimal yields can then be obtained by continuous monitoring.