When and How to Adjust the Price of Your Product or Service
03.04.2016 / Posted in Articles, Budget, Strategy
As we’ve discussed in our previous articles on pricing new products and services and pricing special products and services, selecting the optimal pricing strategy is often a difficult task. But once you’ve identified the best strategy for your product or service and set the initial price, you’re done! Right?
Unfortunately it’s not that simple. Markets fluctuate. Competitors come and go. New products emerge. Demand changes. Each of these factors can affect the ideal price for your product.
But when do you raise and when do you lower your price? And when is it okay to maintain your current price?
When to Increase Your Price
Common reasons to raise prices include:
- Inflation: During periods of inflation companies need to raise prices to maintain profitability.
- Increased Costs: When production costs for the company increase they are likely to raise their prices to offset the change in costs.
Once a company does decide to raise a price they have several options for how to implement that change. If the projected price increase is significant, it may be better to gradually raise the price over time instead of making one large jump. Another option for companies who sell packaged goods is to reduce the amount of product in each package instead of increasing the price that consumers pay per package.
When to Decrease Your Price
Companies may also need to consider reducing the prices of their products. Reasons for a decrease in price include:
- Response to Competitor’s Changes: If a competitor significantly lowers their price, your firm may need to do the same to remain competitive.
- Focus on Growth: Companies may decrease their price to increase their market share or to encourage growth of the market as a whole.
- Decreased Costs: As production costs go down companies can choose to decrease their prices as well, which may make them more competitive while improving their perception among customers.
When NOT to Change Your Price
Sometimes the best move is to keep prices the same, even if there are changes in the market. Maintaining prices is recommended when the market shift won’t affect the majority of company revenue.
Additionally, companies should refrain from making a change in price until they have done adequate research into how the price change will impact sales. It is better to leave things as-is while you do your due diligence than to make a hasty, poorly planned change that alienates customers or ruins your margins.
Monitor the Market
Setting the price of a product is an ongoing process. It is not enough to set a price, leave it, and expect to be profitable. Instead, companies should research and analyze their market landscape regularly and make price adjustments accordingly. We can guarantee the market won’t stay the same forever—and neither should you!
Need help analyzing your market or determining how your firm should react to market changes? Call FrogDog—we’re here to help!
Note: This is the third and final article in our series on pricing strategies. To start at the beginning, click here.