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How Your Customer Insight Determines Your Product Price

What determines the price you set for your product or service? It is quite simplistic in the beginning – you evaluate the total cost of making a unit of the product and then put a percentage of profit margin on top of this to mark its final cost. But how does this price compare against competition? If you own a business selling branded watches, and the customer finds out that the same product is available on Amazon at a 20% lower price, what is stopping them from purchasing it on Amazon instead of your website?


There is no single rule that determines the price you should sell your product at. You could position your product either as a price-leader or as a value-leader. In the case of the former, you set the price for the industry and in the case of the latter, you are the benchmark for the value offered.


Becoming A Price Leader:


In this model, you set the benchmark for the price in the industry. This is mostly useful in a reseller setup or when you sell branded items. That's because in such cases, the customer has the opportunity to evaluate the price of the exact same product from multiple sellers. So, by being the price leader, you could set the rules. Price leadership does not necessarily mean that you set the price. Thanks to technology, it is now possible to dynamically set the price your product after monitoring the price of your competition. There are start-ups that offer tools like WisePricer that crawl the internet to find the price of the product sold at various websites and help you retain the tag of the website that offers the lowest price. This is an effective strategy according to Amitabh Biswal, the manager of merchandising operations at Best Buy Canada. In a chat with ZDNet, Biswal says that this strategy helped his company respond and react to competition more quickly.


Becoming A Value Leader:


If you sell a service or bespoken products, you often have the luxury of setting a price that has comfortable margin over the manufacturing cost. Regardless of this, customers have their own budgets and it is important that you still have a competitor price monitoring strategy since selling your product at a higher price may not exactly be a cake-walk. This is where being a value leader is useful. For instance, when a customer is purchasing office furniture, they often look for something that is custom-made for their office space. By offering a value like furniture design to suit the layout, wood and coloring to match your office design, etc., you are offering a value on top of just the cost of making a product. Value has no 'price tag' attached and provides leeway to price your product or service higher. Even in the case where you sell branded items, it is possible to offer value like 'cash on delivery', free installation, free shipping, combo deals, etc. that makes the higher price viable.


It is easy to get caught among these jargons and forget that the ultimate objective of running a business is to turn a profit. Businesses too often run out of cash flow either because their margins were unsustainable or because customers did not see the value they will get for the money they spend. Pricing strategy is indeed a tightrope walk and as a marketer, it is important to keep experimenting on the price until you hit the sweet spot.