The Secret of Product Pricing

When you’re selling great products for reasonable prices, you’ll get plenty of takers, whereas over-the-roof pricing will dissuade people from buying. What is the right price? It depends on the relationship between the perceived value of your products and the price consumers are ready to pay for them. When the perceived value is higher, prices are also higher.

When customers are unhappy or sales are down, small businesses tend to drop prices to lure them back. But before lowering prices to boost sales, you have to think about ways to raise the value you provide.


The perceived value of your product should be greater than your asking price. If customers equate less value with your product, they will definitely insist on a low price. On the flip side, a low price almost always reduces the perceived value of the product. It is common sense. Dirt cheap products can’t be of the highest quality. Therefore, it is imperative that you strike a balance between the two. You can’t reduce your prices beyond a certain level.

Before reducing prices, you have to ensure that you will be able to live with the lowered price. Increasing prices is difficult after you have reduced them because customers resist price increases.

If the product has a huge demand and is rarely available, the price is unlikely to be an issue. Even if you increase the prices, you will still have buyers.

Tell someone he needs a surgery to save his life and he will readily pay whatever price the surgeon charges. But when he has to buy useful, yet dispensable things like detergents or perfumes, he will comparison shop. He wants to get the best prices. Why? A surgery saves lives. It cannot be substituted and hence price does not matter here. Other items are less essential and that makes them more price-sensitive.

Generally speaking, price becomes less of an issue if the product is rare, essential, or hard to substitute. If the product or service is needed immediately, the customer will pay whatever price the seller charges. Emotionally sensitive products also tend to have higher price tags. By contrast, products that are readily available and that are easy to substitute are more sensitive to price.


You should check your prices annually. Here are a few factors you should consider while changing prices.

  • Compare your offerings with those of your competitors. How do they rank in terms of price and value?
  • Is it possible for the customer to find a substitute that is just as good? Is your product indispensable? If the product is not essential, sales will drop if you increase its price.
  • Do you charge extra for additional benefits or features? Do you offer any promotions, rebates, incentives or discounts?
  • Do you offer discounts when they purchase in bulk quantity? Does your pricing encourage your buyers to take the desired action? For example, if you offer a discount on bulk purchases, it may reduce friction and encourage future purchases.
  • Do you change the prices of your products often? How often does your competitor change their pricing? Do you expect any market shifts or competitive actions that may have a bearing on your pricing?
  • Consider all these things when you decide a price tag for your items.

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