HOW TO SET THE SELLING PRICE?

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How do I set the selling price in a new company?

Setting the selling price of a product or service in a new venture can be a challenging process, as several factors must be taken into account, such as costs, competition, perceived customer value and company strategy.

Below are some steps that can help in setting the selling price in a new business:

1. Analyse costs: it is important to know the direct and indirect costs of production or acquisition of the product or service. This includes the costs of materials, labour, overheads, marketing, among others.
2. Investigate the competition: the price of similar products or services offered on the market should be analysed and compared with your own. This will give you an idea of the market situation and allow you to adjust your price accordingly.
3. Consider the customer's perceived value: it is important to understand how customers perceive the value of the product or service and how much they would be willing to pay for it. This can be done through surveys or market analysis.
4. Define the pricing strategy: it is necessary to define a pricing strategy, be it low price, high price or competitive pricing. This will depend on the positioning that the company seeks in the market.
5. Carry out tests and adjustments: it is advisable to test prices in the market and make adjustments according to the results. This will allow finding the optimal price that maximises revenue and profitability.

Setting the selling price in a new business is a process that requires analysis, research, strategy and constant adjustment. It is important to consider costs, competition, customer perceived value and pricing strategy to achieve effective pricing.

How do I set the selling price for a company going international to a new country?

When setting the selling price in a company that is internationalising to a new country, several important factors must be taken into account:

1. Market analysis: It is important to carry out a market analysis of the country of destination in order to know the competition, the prices in the market and the needs of the customers.
2. Costs and expenses: account should be taken of the costs and expenses associated with the production and sale of the product or service in the country of destination, including transport costs, tariffs, taxes and other costs related to import and export.
3. Exchange rate: it is important to consider the exchange rate between the local currency and the currency of the destination country, as this may affect the final price of the product or service.
4. Pricing strategy: the company's pricing strategies, such as premium pricing, low pricing, penetration pricing, etc., should be considered to determine the best pricing strategy for the target market.
5. Perception of value: it is important to consider the customers' perception of the value of the product or service in the target country, in order to set the appropriate selling price.
6. Local laws and regulations: local regulations and laws in the country of destination that may affect the selling price, such as regulations on maximum or minimum prices, or excise taxes, must be taken into account.

Setting the selling price in a company internationalising to a new country requires careful analysis of the market, costs and expenses, exchange rate, pricing strategy, perception of value and local regulations and laws. It is important to consider these factors to establish a competitive and profitable selling price in the new market.

Why is it important to get the selling price right?

Getting the selling price right is important for a number of reasons:

1. Profitability: If the selling price is too low, the company may not be profitable and may not cover its costs, which can lead to failure. On the other hand, if the selling price is too high, it may negatively affect demand and profitability.
2. Competitiveness: The selling price can be an important factor in the company's competition in the market. If the selling price is too high compared to the competition, it may lose market share. If the price is too low, the company may be seen as low quality.
3. Perception of value: the selling price can affect customers' perception of value of the company's product or service. If the price is too low, customers may perceive the product or service to be of low quality. If the price is too high, customers may perceive the product or service to be of high quality, but inaccessible.
4. Marketing strategy: selling price can be an important tool in a company's marketing strategy. For example, a company can use low prices to attract customers and gain market share, or high prices to create an image of quality and exclusivity.

Setting the right selling price is important because it can affect a company's profitability, competitiveness, perceived value and marketing strategy.

Practical examples of sales pricing

Here are some practical examples of sales pricing in different situations:

1. Penetration prices: A company introducing a new product in the market can use penetration pricing to attract customers and gain market share. For example, a technology company might launch a new mobile phone model at a low price compared to established competition, with the intention of increasing sales and attracting customers.
2. Premium prices: firms may set higher prices for high quality or exclusive products, with the intention of attracting customers willing to pay more for a differentiated product. For example, a luxury clothing brand may charge higher prices than conventional clothing brands, as consumers may associate the higher price with higher quality and exclusivity.
3. Discounts and promotions: businesses can offer discounts and promotions to attract customers and increase sales. For example, a clothing shop can offer a 20% discount on all products for one week to attract customers and increase sales.
4. Dynamic pricing: companies can use dynamic pricing that changes according to demand, supply and other factors. For example, an airline may change the price of airline tickets according to demand and availability, offering lower prices in low season and higher prices in high season.
5. Package prices: companies can offer bundled pricing to sell several products or services together at a lower price than if they were bought separately. For example, a telecommunications company might offer a package of telephone, internet and television for a lower price than if they were purchased separately.

Sales pricing can vary depending on the company's strategy, target market and other factors. Companies can use different pricing strategies to attract customers, increase sales and improve profitability. We must set the appropriate SELLING PRICE. Pricing error causes many start-up failures (+). Avoid the mistake of setting the price based on costs, mistake: many shops double the purchase cost to establish the selling price, and your competition may have another criterion that puts you out of business.

Who sets the selling price of my product/service?

The customer has other offers from competitors to compare other prices, your competition is already setting prices in the market and your customer knows them. First get to know your customer segment (+) (purchasing power, situation, need to cover...) and then analyse what the competition is doing, i.e. their alternatives to our product. Depending on the strategy you are going to choose to see where you are going to position yourself. Before jumping into the pool, and once you know your audience, study what the competition is doingas well as its price. This information must also be taken into account when pricing a product. If you set a price that is much higher than that of your competitors, you run the risk of losing customers. Price imitation must be done very carefully, since the price you set for a product determines who you are going to compete with and the perception that the customer will have of it. You must assess whether it is in your interest to enter into a price war with the competition. Generally, the leader sets the price. And the others follow suit so as not to be left out of the market. We see it all the time in shops. In business it is more complicated, because you have to take into account the production marginsamong other factors.

Avoid the temptation to make an effort to estimate how much it might cost to produce the product, and add to it the percentage of profit you wish to make with the sale of each product. We run the risk of going over the top and losing customers to the competition, or failing to make a profit if we set it too low. Many entrepreneurs start freemium (+) to get customers to try the service... Starbucks' cappuccino price is higher than that of Juan Valdez. Starbucks, however, does not only offer a cappuccino: it offers a different shopping experienceThe coffee has a value added to the coffee that their customers like. In the world of Islam, the concept of price and value is much clearer to them, which is why in the markets the products do not show their selling price. They engage in bargaining until they close a deal for which both parties gain value. How much is a glass of water worth? If I am in the desert about to die of thirst, how much am I willing to pay? The price varies according to the perceived value at the time. When we sell online (+) we cannot be in front negotiating because we would lose scalability (+).

PRICE, A MARKETING DECISION

Many will wonder why the strategy of something that has to do with the company's revenues and thus with its finances is defined in the marketing sphere. The explanation is quite simple clear and we will look at it later. To introduce the subject properly, let's start by defining what is the priceFrom an objective point of view, price is the economic expression of what a buyer must pay to purchase a product or service. It follows that the purchase of a product or service is a customer decision.

The question to ask then is:

• What makes a customer decide to purchase a product or service?
• Response: Perceived value.

 What is perceived value?

It is the customer's perception of the benefits of a product or service. In other words, the customer establishes to what extent the product we offer meets his or her needs and whether the price we ask is related to the benefits it brings. Of all this, it is easy to deduce that the first criterion for setting the price of a product or service is the customer's willingness to pay for it. This fact places the decision on pricing policies in the territory of the marketing. But there are some further considerations to be made in this respect. Price is an element of the marketing mix (+) and therefore has to be consistent with the predefined strategic framework in relation to the target audience and positioning. Indeed, the price is communication, says things about the product and endorses the image that the company wants to build around its product in the consumer's mind. This image is nourished by attributes and values which have to justify the price.

No one can believe that a Rolex, even the most basic, costs 200 euros. If we were to sell it at that price, we would be sowing mistrust in the market and, in the process, undermining the brand's positioning. It is therefore not a financial question but a question of market orientation. From the other end, 1,000 for a short-haul flight on a low-cost airline. The customer would reject it simply because there is no consistency between that price and the attributes or values that the brand offers. Pricing decisions are of vital importance because the survival of the company depends, to a large extent, on its revenues, which are the result of multiplying the units of sales by the selling price. It should not be forgotten here that sales (revenue) forecasts are the data on which the company's financial planning is based and, in cascade, the budgets of each of its departments.

Trivialisation with B:

These are difficult times for companies when it comes to pricing. Regardless of the negative effects on sales as a result of the economic crises, it is clear that, there is a general tendency in many sectors to lower prices. Phenomena such as low cost manifests itself in the world of services, white label or first price products, and even retail brands are negatively affecting the pricing policies of many companies. Chinese outlets are another threat, which has negatively affected the bazaar sector. This trend generates a kind of decrease in the customer's willingness to pay a certain price because he understands that he can satisfy his needs now at a much lower cost than a few years ago. We are talking about the phenomenon of banalisation!!! It negatively affects the profitability of companies that find it increasingly difficult to develop differentiated value strategies that support adequate pricing.

ENTREPRENEURS BEWARE!!!

Be very careful when pricing your products. Someone once said that there is always time to load up on prices. Profitability and survival are guaranteed by acting on the value saucer.

Price and marketing objectives

Under normal conditions a price discount should produce a short-term demand-enhancing effect. Although the initial recommendation is not to lower prices, there are certain circumstances related to the company's marketing objectives that can justify this decision.

JUSTIFICATION:

• Counteracting competitor actions.
• Deter potential competitors.
• Gaining market share.
• Facilitate the penetration of new products.
• Liquidate stocks.
• Facilitating access to new distribution channels

Price and trade policy

A company's commercial policy is a clear framework of what a salesperson can and cannot do in his or her dealings with customers. EThis is a very serious risk of price chaos and the loss of credibility that this entails. On the other hand, trade policy, is a brake on systematically discounting prices.

THE FOLLOWING ASPECTS ARE DEFINED IN THE TRADE POLICY:

• Tariff: Gross price per unit of sale.
• Discounts: Avoid them but if it is not possible to justify them by obtaining quid pro quos for them. 

• • Volume discounts: applicable after a minimum amount of purchases by the customer.
  • Discounts for early payment: can be a good ally for the entrepreneur to avoid cash flow tensions.

• Terms of payment/collection: Cash or 30 days.
• Delivery terms and conditions.

Pricing criteria:

Pricing a product or service is one of the most important decisions that any entrepreneur has to make.

THERE ARE DIFFERENT PRICING METHODS:

• Customer readiness.
• Competition.
• Marketing objectives
• The demand.
• Costs + benefits.
• Profitability targets.

Normally, companies use a combination of all these techniques, but the recommendation is to identify what price the target customer is willing to pay. This must be the backbone of your decision but without losing sight of the references provided by the other techniques. The best way to measure that customer readiness is right at the moment when you validate the business model (+). The moment you determine the correspondence between problem-solution, you present your PMV (+) and evidence of the value you bring to the customer is the opportunity to measure customer perceptions around price. Of course, you must not lose sight of two fundamental references.

YOUR COSTS AND CONTRIBUTION MARGINS AND COMPETITORS' PRICES:

DOES THE IDENTIFIED PRICE COVER YOUR COSTS?

If the answer is yes, go ahead, but if the answer is no, you have a competitiveness problem to solve.

IS THE IDENTIFIED PRICE HIGHER OR LOWER THAN MY COMPETITORS?

Competitors' prices are an essential benchmark, because if you are above them you are likely to get into trouble. On the other hand, there are other factors that, depending on the case, you should consider. One of them is seasonality. The hotel sector sets its prices dynamically and according to the behaviour of demand throughout the year. Another factor has to do with the type of relationship you establish with the hoteliers. distribution channels (+). You may sell your product directly through your online media, but you may also use distribution channels, which will affect your margins. This coexistence of two sales methods can be a source of conflict that you must avoid by allowing the channel to reach the market at a price equal to the one you reach with your direct sales.

From the above it is clear that there is no magic wand for correct pricing. Observation and common sense.

SOME FINAL TIPS:

• When making your Canvas it is important to ensure consistency in your relationships with suppliers and customers. Your strategic position in the value chain and your profitability can be negatively affected if this is not the case.
• Do not systematically resort to lowering prices when sales drop. Constantly review your value proposition to ensure that you are in tune with your customers' expectations. Customers have a rare ability to get used to falling prices.
• Use sales promotion techniques that help you in times of low demand (seasonal or cyclical). This is valid for both offline and online marketing.
• If there is no choice but to touch the price, express the discount as a percentage or in terms such as 3X2.
• Establish a clear and transparent trade policy for everyone. We must avoid chaos in our pricing. This undermines our credibility and reduces the scalability of the business.

Now that you have read this TIP, answer the questions:

1. How have you set the selling price of your products or services?
2. What is your price relative to the competition?
3. Have you validated the price with customers?
4. How have you checked that your customers will be willing to pay for your solution?
5. How can pricing strategy help a company increase its market share?
6. Depending on your project, what are the essential criteria you will follow to define your prices?