In order to price your product, you have to figure out who your market is and what price they are willing to pay for your crafts. This article discusses how to determine your price point.
Pricing by Formula
In many industries, clothing for example, pricing tends to conform to formulae. In the fashion industry, you might expect to sell a product for 2-3 times the wholesale value you paid. In other marketplaces, pricing might be much more narrow, say 30% over wholesale cost. Just because an industry has an expected pricing formula, that doesn't mean you have to follow that formula. But, since the market will operate based on those expectations, if you intend to price differently, especially higher, you will have to clearly communicate to your buyers why your product is priced differently.
By the way, if you follow a pricing formula approach, say two times wholesale cost, your job is to be sure that your costs of doing business and anticipated profit can be reached at that price point.
Pricing by Cost Plus
Following from the discussion in Pricing Part I, you have probably calculated a cost per product, recognising that the variables in that calculation are the profit margin you hope for and, most likely, the compensation you will draw from your business. Now that you have this incredibly valuable information, you need to look at market forces to determine at what price point you can actually sell the product.
It's very useful to do a competitive analysis to get a better understanding of where your price point should be. Determine who your competitors are then analyse their offerings or their marketing and yours in detail. When you are selling commodity merchandise, the competitive analysis that you will conduct will be less focused on the product and more focused on the marketing approach used by the competitor. When you are selling something unique such as handcrafts or art or a unique offering within a commodity grouping, your analysis can focus on product differentiators as well.
The easiest method is to search on the keywords that would lead someone to your site and see who else turns up and where they turn up in the search engine listings. Review their sites and look for the sites your clients are most likely to select over your site. Once you have identified a reasonable list of competitors, conduct your analysis systematically. Create a table with competitor names in one column and comparison points across columns. Take detailed notes as you work through the analysis.
Are they selling exactly the same products that you are selling? If yes, is it because your products are quite available for resale or because you have discovered the same or similar small groups of suppliers?
Compare pricing as closely as possible. Are your prices in the same ball park? 10% lower 20% higher? Do you see clear reasons for differences in pricing? If you don't then you can be assured that customers will buy at the lowest price. If you aren't the lowest priced trader of a commodity type product, then you will have to 1) be a better marketer, reaching more people and/or 2) offer something additional beyond product, such as information, association, etc.
Compare product presentation
Look at descriptions, photos, supplementary information.
Compare website presence in the marketplace
If you don't know about Alexa, you should. Go to www.alexa.com and place the name of any website into the search box. Alexa will tell you that website's ranking on the Internet, trends in ranking, pages viewed and trends and viewers/million and trends. Gather the Alexa data for every competitor's site including your own. For eBay market research, you can obtain competitive data on any keyword by using the eSources Market Research Wizard.
Compare website content
Review each competitor website and evaluate:
- Appearance – is the site interesting, attractive?
- Ease of use – can you move around the site and find things easily?
- Shopping experience – How does the shopping experience work? Is the checkout process quick and effortless?
- Customer service – What are the customer service features? Live chat? 24 hour phone?
- Additional content – Feature articles? How-to section? How-to product guides? Other relevant content?
- Target marketing – Can you tell who the site is trying to sell to? How can you tell?
Compare selling strategies
What kind of selling strategies are they using? Special sales? Multiple product shipping discounts? Frequent buyer plans? After sale offers at checkout?
Once you have collected the data, review your chart looking for ways that:
- you can differentiate yourself from competitors and convince your market to pay a higher price;
- compete on price;
- improve your own product positioning based on what you have learned from your competitors.
The outcomes of your analysis should give you a picture of the competitive landscape and how you and your products fit into it.
Your pricing decisions should be made based upon your best understanding of your marketplace and what price the market will bear, your review of the competition and decisions about the extent to which you can compete on either price or other differentiators that will allow you to price above the competition. Read Pricing Part III - the Psychology of Pricing for good information about ways to increase revenue and profitability through pricing strategies.