Meanings of Right Price Part I
What is the right price to ask for my products? How do I find the right price and what costs do I have to take into account? According to GRADINMATH.COM, price calculation can be a challenge for founders and self-employed people. Much has to be considered and included in the calculation. Because the price should not only cover the costs, but also generate a profit and, above all, be competitive. We explain to you how to calculate the right price.
1. Target group, market and competition analysis
Your customers come first. Because they should of course buy your product. And you will only do that if the price is “right” for you. Therefore it is important to get to know your customers. A target group analysis for the price calculation is essential for this.
Which your target group is depends on the corporate goals that you defined in the planning of your self-employment.
The first step is to look at the “obvious” characteristics to find out who is buying your product and what makes your potential customers different.
- Demographic characteristics
Gender, age, marital status, place of residence
- Socio-economic characteristics
Profession, salary / income, qualification / level of education
- Psychographic characteristics
Religion, attitudes, preferences, interests, lifestyle, buying behavior, brand loyalty, loyalty, preferences, wishes, needs and problems of the target group, communication behavior
If your customers are more corporate customers, other characteristics are important to you:
- Organizational characteristics
Company size, company age, location
- Economic characteristics
Sales, liquidity, profit
- Buying behavior of the company
Company principles, supplier loyalty, time of purchase
- Personal characteristics of the decision-makers in the company
Innovative, communication behavior, attitudes
Once you have an initial picture of your target group, the next step is to analyze the purchasing behavior and price sensitivity of the target group for the price calculation.
- What price can your target group afford?
Disposable income plays an important role in this
- What price does the target group want to afford?
Even if your target group has a certain income, that does not mean that they are willing to pay a high price for your products. On the contrary. Perhaps you are offering a product that is not particularly important for this target group and therefore only wants to pay a low price.
From this you can deduce whether your target group is willing to pay a little more for your product because, for example, quality is particularly important to them.
In order to better explain the result of the analysis, we assume that we are supporting the founder Karl in calculating the price. He has developed a shelving system that he would like to sell online. The target group for him is:
- Men between 35 and 50 years of age living in a relationship who live in the city
- Disposable income is slightly above average
- It is important to have a beautiful and “trendy” furnished apartment
- And we like to spend a little more money on special furniture.
- From this it can be deduced that the target group values particularly good quality, for which they like to spend one or two more euros.
Sources for market research
Are you now wondering how to get hold of this information? There are two ways to do this. On the one hand the quantitative and on the other hand the qualitative research. Of course, you can also combine this research.
Qualitative market research can include the following sources:
- Web analytics
- Public studies / industry studies (Federal Statistical Office, Statista, Chamber of Industry and Commerce)
- Market research institutes (Society for Consumer Research, IFH Cologne, Sinus Institute)
- Own market research
- Consulting firms
Quantitative market research can
- Customer interviews or surveys
- Ethnographic research (Google Analytics, Facebook Insights)
- Industry associations
- Market studies ( Sinus-Milieus )
- Own market research
Analysis of competitors
You can also analyze your competitors on this basis. Because the competition also plays an important role in price calculation.
Find out who your direct and indirect competitors are, what products they are offering and what price they are charging for them. Also note the price-performance ratio. In other words, what additional services do your competitors offer? Maybe a free delivery service, round-the-clock support?
This can lead to the following questions:
- What are the strengths, what are the weaknesses?
- What is the unique selling point?
- What does he do better than himself?
- What additional services does the competition offer?
- What is the target audience?
- What price does the competition ask?
- What is the turnover of the competition?
- What are your plans for the future?
When calculating prices, it often happens that the market demand is overly optimistic. Since one assumes a high demand and sales volume, more material is bought and more is produced. If the quantities produced are not sold, the calculated price does not cover the costs. Because the actual income does not match the calculated and probably does not even cover the expenses.
In order to be able to assess the real demand for the price calculation, founders can consult industry figures and reports. The actual market potential can be derived from this.