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Countering the Pricing Challenges Small Businesses Face

60% of online consumers make their buying decisions based on the product’s price on e-commerce. The data in itself speaks volumes and clearly explains the importance of setting the right price point for your products. But, how do you do it?

09/06/2023

Countering the Pricing Challenges Small Businesses Face

Small Business Product Pricing

60% of online consumers make their buying decisions based on the product’s price on e-commerce. The data in itself speaks volumes and clearly explains the importance of setting the right price point for your products. But, how do you do it? In general, the thumb rule that small businesses can go by when it comes to setting their product’s price is to ensure that the product price:

Covers the input cost (cost of raw materials and manufacturing/ price at which the seller has bought the product from the supplier/manufacturer, shipping charges, etc.)
Gives a good profit.
Provides a steady cash flow (covers the monthly expenses made to run the business e.g. electricity bills, rent, salaries of employees, etc.)
Attracts new customers and retains the present ones

Effective product pricing is achievable by following an effective pricing strategy based on your product and objective. If you want to become a sustainable and profitable enterprise, there are different types of pricing strategies that you can choose from.

Pricing Challenges for SMBs

A combination of different factors as mentioned below may affect the price of your product:

prices offered for the same products by your competitors
customers’ expectations
need to generate revenue and profits
market trends

Considering all these factors in mind and setting the right price for your products can be a tricky affair. Having a full-proof pricing strategy can make it easier to balance the odds, but even then, things can go wrong. To reduce the chances of wrong pricing and risking your survival, here are three things you should consider:

Competing on Price

86% of customers compare prices offered by different sellers before making a purchase. If your customers realize that they can buy a product offered by you at a much lower price from your competitor, you would end up losing your customer. So logically, sellers should also set their product price by keeping the market trends in mind. Only 26% of businesses actually manage to do so.

Offering a competitive price needs thorough research, which requires a lot of time, money and expertise. SMBs (small and medium sized businesses) may struggle when it comes to getting the needed investments to run their business. In such a scenario managing funds for conducting a competitive analysis, that too when the competitors can be in hundreds is not at all easy. This makes competing on the price one of the major challenges for most of the small businesses.

Excessive Discounting

Customers would always want value for their money. This can be testified by the fact that 90% of the customers look for the best deals online before making a purchase. Customers may be willing to pay a reduced price but may not want to compromise on the product’s quality. Considering many relate the price of a product with its quality, offering a great discount might easily make the customers question your product’s quality. This may harm your brand’s reputation and make customers consider your brand inferior to others.

Underselling

Offering a reduced price for the product is not always the best way to go about your pricing strategy. The revenue generated by selling your products also needs to cover your daily expenses. Bringing down the product price far below the optimal line to attract more customers can very easily backfire. It can lead to cash crunches after a while. You might soon end up missing the sales targets due to a lack of funds for purchasing products. Needless to mention, this can eventually land you in debts and can even lead to bankruptcy.

How to Tackle Pricing Challenges?

You are by now aware of the importance of correct product pricing and the consequences of wrongly doing the same. If you are wondering about finding out ways to tackle pricing challenges then here are a few tips for you to follow:

I. Understand the Market

You can start by studying the market. Have a closer look at your competitors and their pricing strategies. Carefully understand the demand for the product in the market. You can try to create your checklist and find answers for basic questions like –

Are many businesses selling your product?
What is your USP (Unique Selling Proposition)?
What feature of your product, if improved, can help you increase its price?
Are customers paying more to your competitors? If yes, then why?
When do you witness high sales?

Based on these answers you can get a rough estimate of where you stand in the market. This is however a very basic approach and might not guarantee accuracy. You can hire professional marketing researchers instead, or invest in market research tools.

II. Experiment with Different Pricing Strategies

There are different types of pricing strategies in marketing like value-based pricing, competitive pricing, cost-plus pricing, market penetration pricing, etc. It is not necessary to stick to one pricing strategy every time. You can switch strategies based on the market conditions and your business needs.

For example, if at a certain point you may feel the need to generate more income, then setting a lower price for your products can attract more customers and serve your purpose. However, if after a few months you may feel the need to establish your brand as a high quality and prestigious product provider then you can consider increasing the prices again. You may not choose to follow any rigid rulebook.

III. Create an Attractive Value Proposition

Will you buy a product that is overpriced but does not offer anything extraordinary? Definitely not! Therefore, you may focus on selling your product at a price that justifies its value. If needed, make necessary changes to your product so that it becomes unique. If your product provides to your customers a benefit other competitors cannot, they are likely to spend more and end up buying from you. This can give you an upper hand over competitors and may attract more customers as well as retain them.

IV. Advertise Your Brand

Advertisements can play a very important role for your products. It communicates your product USPs to your target audience and may help popularize it among them. Hiring influencers to promote your product and brand can create a positive and reliable image of your product in the minds of customers. Once you establish your product as the best choice for your customers, you may also incrementally raise its price.

V. Improve Customer Service and Relationship

What customers may value more than the product’s price, is their experience with your brand. Research says if you focus on building a strong bond with your customers and offer them excellent customer service, 89% of them are more likely to buy products from you instead of your competitors, even if that means paying a higher price for it. Click here for tips to surprise your customers!
Pricing is the one of the most important elements that determines your survival. With a few tips and tricks in your pocket, you can easily counter all pricing challenges that come your way.

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