How to put a price on your product or service

Pricing

We have seen from the index page that price is not something to be afraid of, and that customers will pay a great deal of money for a product if they want it badly enough. What motivates them to want the product is a whole new subject all by itself; we used the example of a drug which could extend life but it could just as easily be a prestigious product instead, which enhanced the buyers' social standing. A good example of this is a diamond ring which has no intrinsic value whatsoever but for which many people would pay a very large sum, or a product like a Rolex watch which, although it tells the time pretty accurately, does so no better than many watches which retail for £15 or less against the many thousands of pounds that people pay quite happily for their Oyster or Yachtmaster. German cars have traditionally commanded a high price because buyers not only recognize that they are very reliable machines but also because there is a social cachet about owning a BMW or Mercedes; and despite their own financial problems the manufacturers of Jaguar cars can still challenge quite a hefty premium for their top range models, despite the fact that there are plenty of other vehicles on the market which are every bit as reliable and well built.

Every manufacturer of a product or provider of a service has to decide just where to position it in the marketplace; are they going to go for the discount customers who buy mainly on price or are they going to aim at for a more quality (and possibly more vanity) conscious buyer? This is a question for the marketing department to decide after having investigated not only the market for their products but also the state of the competition.

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It to be borne in mind that although the law of supply and demand is virtually absolute, both supply and demand can fluctuate! It is not all that long ago that memory chips for computers were so valuable that thieves were breaking into computer cases and stealing the chips only, which were very easy to conceal and for which there was a ready market at a good price. Manufacturers mainly in the far east made a great deal of money out of producing these but slowly but surely competition increased and prices not only fell but eventually tumbled until memory chips were practically being given away with cornflakes. From having only one or 2 MB of RAM in a computer 10 years ago we now expect to have multiple gigabytes and we do not expect to pay a great deal for those gigabytes; the world's manufacturing capacity for silicone chips greatly exceeds the potential market, particularly in these economically depressed days, and so the law of supply and demand is still working, this time with the opposite effect.

Supermarket shelves fall of own label goods which in many cases are substantially cheaper than those produced by well-known manufacturers and yet the branded goods usually outsell the own label goods by a substantial margin; the public tend to trust a well-known brand but assume that because a product is cheap it is of inferior quality.

The conclusion of the above is: the price of any product or service does not have to be very low in order for it to sell, and the public are prepared to pay high prices if they can see that there is a sufficient benefit in it for them. It is the job of the marketing department decide where to position the product in the marketplace and to decide what sort of pricing structure will be to the most advantage for the company.