Price setting: a market-based approach

Price setting: a market-based approach

03/18/2021 - Dynamic pricing

How do you know if you’re setting the prices for your products correctly? Well, this will depend on what your position in the sales process is, on if you’re using price optimisation software to help you, and, above all, on the type of pricing strategy you’re using. Have you ever checked whether this is aligned with the reality of the market? We’ll tell you how to make a market-based pricing strategy.

5 factors for setting market-based prices

In defining market prices, the main consideration is the element linked to the potential buyer. In other words, how much are they willing to pay for your product?

Five concepts or ideas assign the value associated with the product:

  • The usefulness that it has in daily life or for the performance of a very specific task, and its relation with the cost.
  • The type of user that it’s aimed at and their concerns: is it a luxury item, a basic need, etc.?
  • The product differentiation based on the competition, where a unique or original product is considered to be preferable for a number of reasons.
  • The possibility of substituting the product with another based on its affordability or the type of need.
  • The duration of the good or product acquired: is it possible to store it? is it a volatile product? or is it an experience (with great sentimental value)?

Market-based prices are defined based on all of these variables.


How are market-based prices set?

The main difficulty in setting market-based prices is that there’s not always a clear reference point or the ecosystem might not manage to fully convince the business strategist. This is why there’s no standard mathematical formula that can be applied to all cases. However, there are techniques that will help you to identify the best market prices for your products.

The first is to directly survey your buyer profile, learning their needs, their expectations, and what your audience would be willing to spend first hand.

The second will be given to you by your competition. As usual, when you enter a market, you ought to carry out a business study that will help to identify your competitors and their action plans.

And finally, there are diverse techniques you can implement both in the early stages of launching your business as well as when launching a new product. Why not also use them to measure the health of your pricing strategy?

One example of this is the bid-based pricing strategy. Apart from studying the audience, try selling limited units of your products at a price chosen by the user. You can use promotion optimisation software to calculate the average value, offering packs or lots with a relative value. For the more adventurous, don’t hesitate to launch a real auction, even with your final units! The results are sure to surprise you.

What other strategies can I combine with market-based pricing?

Once you’ve set the prices for each of the products in your catalogue, you should choose which operating strategy you’re going to use. In this sense, you can opt for a pricing strategy based on the competition, chose one based exclusively on demand forecasting, or, quite the opposite, take a more aggressive approach based on buying and selling large lots at prices that are in an entirely different league.

No matter what the case, a pricing tool will allow you to make all the changes that you need at any given time, automatically and using as many parameters as you wish to include. With tools like Reactev, for example, you can use a dynamic pricing strategy based on that foundation you’ve already established for your business. This will allow you to optimise the relationship between your sales volume and your profit margin at all times. Try it and begin selling better!

Category: Dynamic pricing

Tags: ecommerce, pricing

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Angela de la Vieja
Content Manager

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