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For any company, regardless of the industry, it can be challenging to decide the right price for their products, and manufacturers are no exception to that. They face unique challenges owing to the ever-evolving products and accurately estimating the fair market value for these products.
The goal of any manufacturer is to optimize their profits. Increased sales volume alone doesn’t imply increased profits. The profit margins depend on cost, selling price, and unit sales volume. They should be in the right proportions to gain the desired profits.
The Pricing Challenges of a Manufacturer
Setting the prices for new products in the manufacturing industry is not as simple as it seems. While it might seem that one can apply a pricing strategy out of the four, it can get a little challenging in real life. It wouldn’t be an ideal world if you could manufacture and sell as many products as you wish at direct costs. The profit would depend on the varying selling prices for the products.
However, in the manufacturing industry, the new product pricing strategies get complicated due to many factors. Usually, the quantity of the product that a company can manufacture at a given point will be limited by the production capacity of the plant labour force and the availability of the raw materials.
Increasing the manufacturing to stock up the inventory levels in the warehouse can have a direct impact on the production and, in turn, your pricing. These factors must be considered while determining an effective pricing strategy for optimizing profits.
Manufacturing Pricing Strategies
1. What the Market Will Bear
In markets with no or little competition, a manufacturer can implement a pricing strategy that maximizes profit. It is based on the maximum price that the market will pay for their product. The plan works when the buyers are not price-sensitive. If the product is desirable and unique and there is a need for more competition, the approach can be helpful. It is one of the most commonly used new product pricing strategies.
2. Identifying Underperformers
Companies tend to ignore the underperformers during the rising tides of profit. However, during a down economy, it is essential to identify the underperformers and identify why certain product lines might be costing the company more.
3. Pricing Analytics
Using an analytics tool can help you identify and anticipate future changes and adjust your pricing accordingly to react to those changes. Pricing analytics evaluates past performance in a particular market condition and suggests what can be sold in a specific region.
4. Optimized Sales Price
The main objective of the manufacturer is to set a price, inform the sales team, quote deals with the same prices, and monitor the outcome, followed by resetting the prices if necessary. Having effective software will automate the process, making it quick, accurate, and precise.
5. Set Prices that Capture Value
A value-based approach optimizes profitability. The right way of making the most out of this approach is to think like a customer. Evaluate the product and its alternatives and think if it’s worth paying extra. Customers will choose the product that offers the best deal.
What is a New Product Pricing Strategy?
New product pricing strategies in any business are tactics used to determine optimal pricing for new products in order to maximize their price. While some of the strategies are based on the cost and value of the products, others are based on the competitive landscape. Thus, pricing strategy consists of all the methods a business uses for deciding how much to charge for their product.
Some businesses keep it simple, while others have a thoroughly calculated pricing strategy in place. It is essential to consider the competition and consumer behaviour while pricing new products as they help in achieving a competitive edge in the industry.
New Product Pricing Strategies with Examples
Here’s a look at the popular pricing strategies used in the manufacturing industry:
1. Competitive Pricing Strategy
A competitive pricing strategy is a method that consists of setting the prices of the products in relation to the prices charged by the competitors for similar products.
Many e-commerce stores, such as Amazon and Myntra, price their products based on what the competitors are charging for the same product. Hence, they make price adjustments frequently to stay competitive.
2. Cost-plus Strategy
Cost-plus pricing is also referred to as the markup pricing method. It is one of the most popular pricing methods among the manufacturers. In this pricing, a fixed percentage is added on top of the production price of a unit. This leads to the final selling price of the product.
Retail companies, department stores, or grocery stores sell their products by adding a markup on the original cost of the product.
3. Equipment as a Service Pricing
A trending and hot pricing strategy is the EaaS. The traditional manufacturing industries are now launching pricing models for the services. Even in manufacturing companies, the price model is turning towards ‘pay-per-use’. It is in direct comparison to the cost-plus pricing model for generating more value from the manufactured products.
4. Suppression Pricing
Suppression pricing is a type of pricing strategy for new products where the products that were priced at a premium are replaced by new models to become the new premium-priced product because of fashion, seasonability, or functionality. The older products might decrease the price.
In the automotive industry, suppression pricing is relevant as old parts might become obsolete and get replaced by new and upgraded high-priced versions.
5. Value-based Pricing
In this method, the prices of the products are set based on the perceived value of the consumers of the product. The pricing depends on the customer’s willingness to pay. It revolves around customer-focused pricing, but it is likely to underestimate the value of the products.
People are happy to pay a premium for getting a haircut from top salons and experienced hairdressers, owing to the perceived value of the product or service in their minds.
Effect of Price on Profit
There is a direct impact on the price of profitability of a business. Setting higher prices ensures optimum profitability but leads to lower sales volume, and setting the prices too low will definitely affect the profit margins. Thus, a business must find the right price for their products to boost profit.
Manufacturers must track competitor prices and study consumer behaviour as a part of their pricing strategy development process. It takes work to come up with new product pricing strategies quickly. It is best to invest in automated tools for price tracking and analysis to make your job easy.
Transform Your Manufacturing Game with PriceIntelGuru
Launching a new product is a challenging task, and pricing that is even more tolling. So, PriceIntelGuru provides you with insights that can help you study the current market conditions and also your competitors without any kind of hassle. In today’s AI-driven market and industry, reaching your target audience and being competitive is not enough. You have to provide better and different in such a manner that it can position itself in your audience’s mind with ease. Seize the opportunity to stay ahead with a difference with us.
So, what are you still waiting for? Book a demo today and launch your products with panache.