The price you set for your products or services is one of the most important decisions you’ll make for your business. Setting the price will make or break your business. If the price is too high or too low, your business will not flourish and limit your growth. It can also cause serious problems with your sales and cash flow.

As you start your business, you need to consider formulating your pricing strategy. This strategy should ensure competitive pricing so you can get ahead in the industry or market you’re in. Read on below to know more about setting competitive prices to help your business have a steady cash flow.

What Is a Product Pricing Strategy?

Product pricing isn’t just a personal decision, it’s a science. There are many different methods out there in regards to pricing your products. Some methods rely on using complex mathematical equations and formulas, while others use simple concepts.

Most people opt for a formulaic approach that relies on a certain percentage or profit margin and what percentage of customers you would like to reach. Some businesses even practice loss leader pricing, which sets the price of their products lower than their competitors so that people will be attracted to purchase their product.

Some other product pricing strategies are based on utilizing some simple rules of supply and demand. In other words, you should figure out the number of people that will buy your product within a specific period.

Competitive Pricing

Let’s say your business has a competitive product, like a new tablet. You’re looking for ways to price the product competitively compared to the leading business in the market. A more effective way would be to reduce the tablet’s price by two to three percent so that the price will be competitive with all of the competition, but not so competitive that customers won’t buy it.

Understanding how the competition is doing is also essential in product pricing strategy. This may include the quality, safety features, value to the customer, environmental issues, service, marketing, support, etc. By being flexible, you can establish a lower competitive price for the same products without losing its quality.

  • Pricing Models

Pricing models are essentially the basic ways to set a cost for certain products or services. For example, many digital consulting and SEO agencies use a retainer pricing model to price the services that they offer to their clients. Here’s a look at different pricing models and how they help you as a business owner:

  • Based On Gross Margin

Profit and loss are figured in when the prices are decided. The less common model is based on the net margin, where the seller takes a certain percentage of the total product price in exchange for the distributor’s markup.

  • Based On Location

Pricing products is based on location and can be used to determine the minimum quantity of sold at any given store.

  • Specific To Product

Pricing is made to fit a specific product type or customer base. This allows a business owner to set the price of a particular product based on the average amount that customers pay at similar times and for similar products.

  • Specific To Customer

The business owner determines how much their company is likely to sell and what products are popular with customers, based on the current market situation.

Why Competitive Pricing Is Important

The importance of product pricing and competitive pricing in a business’s success or failure cannot be overemphasized. Here are some of the reasons why competitive pricing is critical for your business:

  • To Acquire A Percentage In The Market

A large percentage of the products in the market today are priced too high compared to their actual value. They’re being priced so high because the companies that are manufacturing them know that there’s an immediate demand for the product and a significant amount of competition within the market place. They’re competing with one another for the sales of that particular product. If you don’t price your products to be profitable and competitive, you may lose possibly a lot more in sales.

  • To Increase Your Sales

It is true that when you price your products too high, they won’t sell as well as they could, especially when your competition is offering the same product at a lower price. However, this doesn’t mean that you should price them lower than they should be. A lower price will only get you halfway to making a profit, and your competitors are likely to do the same thing.

When you price your products low, you can still reach many customers who might be otherwise unwilling to buy from you. Therefore, if you choose to price your products low, you can still get a return on your investment, which will allow you to increase your profit margin and make you more money.

  • To Acquire New Customers

To truly understand the importance of competitive product pricing, you must understand your target customers. You must know who they are, their needs, what type of product they’re looking for, and why they are buying from your competitors. By understanding your customer, you’ll be able to price your products to be profitable.

By understanding your customer, you can also price your products in such a way that you don’t lose any customers as you are trying to get them to buy from you. You can price your products competitively, and you can keep your customers loyal to your company.

  • To Acquire Customer Loyalty

Customer loyalty is a very important part of your business, and if you don’t build up customer loyalty, you’re not going to get much out of your business. Therefore, you should understand the importance of product pricing and how to build your customer base.

If you don’t have a large customer base, you may find that your competition can price their products so competitively and quickly, and you’re unable to compete. If you don’t have a large customer base, you may not be able to increase your profit enough to stay in the marketplace.


Pricing can also be affected by how you advertise your products. If you have a great product and put it in a highly visible place, then your item’s price can shoot through the roof. Competitive product pricing also entails considering other costs, such as shipping and handling charges that you must incur to get your product to the customer. Shipping can account for as much as 20% of a product’s price. So, make sure you keep these costs in mind.

You need to make sure you can attract new customers to your company or keep the customer base that you’ve built up to date. It’s also essential to understand the importance of customer loyalty and your customers’ likelihood of coming back to purchase from you again.