A taxi driver charged me GHc10 to drive me to my destination, where he was already heading. I offered GHc8 but he refused. We both stood our grounds in the negotiation of the fare. At the end of the day he drove away.
Fortunately, another taxi pulled over but charged the same amount, GHc10. Again, I offered GHc8 and he agreed. I had the opportunity of seeing the previous driver’s taxi in front of us throughout the journey. Guess what? He drove alone in the car to the point where my journey ended. He used fuel and wasted time driving his taxi without a passenger over that distance. He was unwilling to sacrifice GHc2 for GHc8. He lost GHc8 because of poor pricing.
Pricing is a tricky aspect of business management. You have to get it right, to attract and maintain customers. It must not be too low to make losses or drag your brand through the mud.
Here are some tips
Know your market
It is important to know the market you’re operating in. But it’s more important to know the section of the market you seek to satisfy with your product and service. You must find out how much that section of the market earns, how important your product is to them, and how much they are willing to spend on such a product or service. This forms the guiding framework within which your price should lie.
Work out your costs
Your cost forms the basis for your price. It is the foundation of everything. You have to price above it to make profit, if your business is not a sophisticated one. Both direct and indirect costs must form part of the cost of your product or service. Many small businesses without professional accountants are unable to identify indirect costs such as electricity, water, delivery cost, market tolls to factor them in pricing.
There are several pricing strategies, but whichever you choose, you don’t want your prices to fall below your costs in the long-run.
Set value-based price
The price customers pay for your product must be worth the satisfaction they derive from consuming your product or service. This is what will keep customers coming back every day or keep them away. The price sends a signal of the perceived quality of your products. In Ghana, Nigeria, Kenya and other African countries, consumers attach some level of prestige to high-priced goods and services. We assume your product is the best, among other factors. But if you over price it too, you could lose out. So find the right level where your brand is perceived the way you want it, whilst attracting and retaining customers. You may not get it right from the beginning, but there’s not much harm trying and testing it.
Always be on your toes
The key to effective pricing is to be dynamic. In this fast-moving world of business, you cannot set a price and go to sleep. You have to constantly monitor changes in the market; competitors’ prices, consumers’ income, your production cost, general economic conditions such as interest rates, and your strategic direction as well.
Your price should be reflecting changes in these factors, however marginal, in order to continue attracting customers and retaining what you already have, while making decent profits.