Price is one of the variables of the marketing mix.
In practice, it is the currency, the money that is sufficient for the purchase of a good or a service.
The price of a product has certain characteristics:
- It is a means of communication: the product, through its price, conveys an image of quality; often, the higher it is, the better and more exclusive it appears to the customer's eye.
- It is a tool that allows differentiating types of customers: higher prices attract one circle of customers, lower prices another.
How to establish the price of a product?
To establish the price of a product, we can follow 3 phases:
- Cost-based pricing calculation: that is, determining the cost to create a product or service, adding a percentage that is summed up with the production costs, resulting in a final selling price that covers general expenses and the company's profit. However, this phase does not consider how much customers would be willing to pay for the product. Indeed, if a customer is willing to pay a certain amount it is only because they feel that the product can meet their needs.
- Competition-based pricing calculation: this phase, on the other hand, is based on analyzing competitors' prices. Besides the price however, it is also good practice to analyze the marketing strategy chosen compared to competitors.
- Value-based pricing calculation: this strategy is based on "perceived value," meaning the price is set according to what customers are willing to pay. Perceived value focuses on the problem that the customer has in order to be ready to solve it with your products.
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