Consider the cost of buying and selling your product.
Someone will always sell cheaper.
It doesn’t matter how cheap your product or service is, there is always someone who will come along and undercut you.
It is important that your product or service offers good value for money and that you can demonstrate this.
You do not have to be the cheapest providing that you show your customers why you are more expensive. Both Kia and BMW manufacture cars. BMW are significantly more expensive by being able to justify the higher price.
Add value to your product in order to charge a premium price.
For example, you can buy a lettuce from your local supermarket for under 50p. Cut it up, wash it and put it in a bag and you have salad with a retail value of £1.50. Cover the salad in dressing, put it in a bowl and serve it in a restaurant and the value rises to £5.00. The more processes a product undergoes, the more you can charge for it.
Price your product according to its expected lifespan
For example, an electric kettle can be bought from your local supermarket for around £15.00 and your expectations regarding its reliability will be low. An electric kettle from a high-end retailer could cost as much as £75.00 , but the expectation would be that the more expensive kettle would last at least five times as long.
Invest in the brand and charge a premium.
An online search revealed that a can of Heinz baked beans at Tesco was 75p compared to their own brand retailing at 23p. So what is it about Heinz that persuades consumers to pay three times as much. You could say, ‘taste,’ but taste is subjective. Just ask anyone that has given up sugar in tea and coffee. The reason Heinz can charge three times more is that they have invested in their brand. It doesn’t matter whether it is a better product or not. People feel comfortable with the brand, they trust it and they perceive it to be better quality than the own brand. The price difference reinforces the perception. ‘It must be better because it costs three times as much!’
Know what it costs a customer to use your product.
You can charge more for your product if you can show a saving in the cost of running it. For example, an LED replacement light bulb costs significantly more than either an energy saving or halogen lamp. The running costs of an LED lamp in both electricity consumption and its increased product lifetime makes the LED bulb a much cheaper long-term proposition.
Consider discounts and special offers.
Be careful, you have to sell a lot more of a discounted product to make the same amount of profit. It’s much better to give away things with a high perceived value that cost you little. For example, ‘buy one get one free’ givers the perception to the customer that the goods are half price when in truth what the retailer is giving away is the cost price of an item. One national retailer selling extended warranties on their dishwashers offered to visit the home of the purchaser once a year to clean it. A low cost to the retailer, but high perceived value to the customer.
Make it easy for a customer to switch to your product from a competitor.
Often there is a cost to the switch and it is essential that these costs are kept to a minimum or eliminated. For example, the computer programs used on Apple Mac and Microsoft computers are incompatible due to their different operating systems. Looking to break Microsoft’s dominance of the business market, and realising the high cost to businesses in order to change all their software, Apple came up with a way of segregating the memory on their computers enabling them to run either Mac or Microsoft programs.