Pricing is determined by how many people want your product and how much you have to sell.
The more demand for your product, the more power you have in the market place. If you are in an industry that is flooded with the same type of product or service you provide, then you have limited bargaining power. The most common market structure that predominate the real world is called monopolistic competition. In a monopolistic competition, your power to affect the price of the product in your market depends on how well you can differentiate your product. For example, I can sell red pens and someone else sells blue pens, or I sell snowman cookies and someone else sells sunshine cookies. Each difference appeals to different customer taste. If I am in a market where people prefer the sunshine, then the probability is that I can charge them more for my sunshine cookies.
This concept is known as perceived value. Perceived value is when I charge consumers a certain price for a product because of the value or sentiments they have attached to it. Perceived value is very different from actual value because where actual value focuses on how much it costs me to produce a certain product, perceived value focuses on how much consumers are willing to pay. Business owners try to increase perceived value by adding sentiments, extra services, or condiments to their products. When you have many people in the market selling similar products, you always have to think of ways to effectively compete.
There are 4 things you have to take into consideration when you set price namely:
- Demand
- Costs
- Actions of competition
- Customer perception
Demand:
Before you can set price you have to predict volume. If your goal is serve a small number of customers, you will need a higher price per person to cover your costs. In determining demand you have to be careful not to price your product or service out of the market. You have to provide the products and services customers want at a price they are willing to pay.
Costs:
Depending on what industry you are in, market forces might play a big role in determining your price. Regardless, your price has to be above your costs if you are going to make a profit. You should do a break even analysis to predict the price you can charge for each predicted unit of demand.
Once you figure your costs you could choose to use cost plus or differentiation pricing. Cost plus means you charge a percentage over your cost. Differentiation pricing means you charge a premium price based on your ability to differentiate yourself from your competition.
Actions of competition
Do you have any similar businesses putting together a similar conference? How much do they charge? It is always a good idea to keep tap of what your competition is doing even when you use differentiation pricing.
Customer perception:
It is important to know how your customers or potential customers perceive your product. Knowing this will allow you evaluate you your true competitors are. Your true competitor is the alternative your potential customers choose rather than come to you. Knowing your customers perception will help you market effectively.
Pricing is not an easy subject and it is more of an art than a science. When you set a price, you are actually predicting the future which is why you have to be willing to adjust based on how the market responds.