1033
1185
5119
Yet, when prices are just right, a product can Drive Sales, Bolster Profits, Enhance Brand Value, and Ensure Long-Term Success.
So, how does one can determine the elusive "RIGHT PRICE"? Let's explore.
Two primary factors shape pricing decisions:
(1) Cost, and
(2) Value to Customer
Let's know more about both these factors
(1) Cost
You must always be aware of your costs. Knowing the cost is easy for those who just buy and sell the products. But for those who manufacture the products themselves, it requires some effort. Cost includes amount spent towards Raw Materials, Labor, Transportation, Packing Material and other Overhead Costs. In short, Cost means all Expenses incurred on Product to become Market-Ready.
2. Understanding Value to Customer
Knowing the Value a product holds for customers is a difficult but an important task. Traditionally , if you are running local shop, Repeat Purchases are a strong signal of good Value to Customer of a Product.
However, in online business, the Customer Returns Ratio serves as a key metric. High return rates indicate dissatisfaction, whereas low returns suggest customer satisfaction and good Value To Customer.
After analyzing numerous reports, we found that businesses maintaining a 12% to 15% Customer Returns Ratio are profitable.
You may wait for your Customer Returns to get normalise till they less than 25%
But, if your Customer Returns are higher than 25%, you may try any of the three options :
(1) Reduce the Price (if costs allow), or
(2) Improve the Quality of the product or
(3) Discontinue the Product (because anyway the customers don't like the product at the given price).
However, if Customer Returns Ratio is below 10%, it may be considered that the product is highly valued by the Customer. This allows you gradually increase the price, which in turn will give you higher margins. (However, this must be done very carefully otherwise it may spoil the business.)
Note: The above stategy cannot be applied to non-returnable products
To ensure ongoing profitability, utilize tools like The Business Scorecard Reports. These tools offer comprehensive business analyses, facilitating informed decision-making.
To get reports, visit www.businesscorecard.com
In essence, pricing isn't merely about numbers; it's about striking a delicate balance between cost, value, and profitability. By understanding these dynamics and leveraging appropriate tools, businesses can navigate the pricing maze and thrive in competitive markets.
Citation: The above article is inspired by a YouTube video on "The best way to price any product" on the channel named "Y Combinator". You may see this video by clicking here.
Author : CA Maheshwari Dubey
Date : 5th June, 2024
