Setting a price for your product or services, especially when you are trying to sell on the Internet, can be the most crucial business decision. Setting a price is not as simple as it might sound. If you are looking to make profit your price should be more than your cost but it has to be lower than the ‘price the market can bear’, i.e. the price your customers expect to pay for your service. You have to keep these things in mind when pricing your products.
There are elaborate pricing plans that you should understand and be able to work with. What pricing plan you want to work with would depend on your business model.
Like the ‘Pricing to Penetrate’ plan. This plan would work for you if your aim is to penetrate the target market, quickly. To achieve this objective you will have to price your product low.
But it’s important to decide how low you can go without hitting the bottom. You need to figure out the lowest you can go without running into debts and heavy losses. You should not have reservations about incurring initial losses if you will get long term customers in return.
But how do you determine the lifetime value of any customer?
Lock in your regular customers and make sure you take measures to make them stick to your particular brand. Penetration pricing is useful if you are going to make a long lasting impression. It can also be useful in circumstances where a lot of new players are jumping into the market.
Your product should be the ultimate ‘sticky product’ which the customer can let go of. Online brokers for example, are so much more convenient that once hooked people don’t even think about alternatives.
Another way to ensure that the customer returns is to manufacture an exceptional product. When selling books online for example, a great book with a good price would ensure your instant popularity.
Amazon.com for example is the leading player among online book stores because of their heavily subsidized rates. Even though this business tactic might have cost them many a thousand dollars but they have managed to create a solid customer base which they can now bank upon.
Another viable example in real life is how companies that manufacture razors hit upon the idea that it would be much more profitable to resell razor blades than handles, and the rest as they say is history.