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Simply speaking, the price of a product or a service is its monetary value at which it is offered for sale in the market.

 

The price of a product is arrived at after intensive deliberations and brainstorming based on data and information pertaining to various areas. These areas include costing, profit margin, competition, market dominance, customer demographics and customer behavior and so on. By looking at these areas, it can be easily inferred that pricing is not just based on statistics but also on analysis and strategies. This article shall attempt to highlight some of the most important considerations in determining the price of a product/service.

Pricing Approach and Strategies

Pricing decisions are guided by a pricing approach or strategy which provides businesses a sense of direction in the process of price determination. Pricing strategies depend upon the nature of the product, demand and supply, marketing goals and the status and position of the business enterprise in the market.

When there’s a demand in the market for high-end products or the products come with a strong USP, companies usually adopt premium pricing policy. The other important prerequisites for premium pricing are the presence of market demand and absence of close substitutes.

When the competition is intense and products are homogenous, companies go for penetration pricing where the prices are set relatively lower than the prevailing rates in the market with the objective of attracting customers and quickly capturing market share.

Economy pricing is very helpful where price sensitivity is a major influencing factor. In economy pricing, companies adopt a no-frills approach and costs are kept to the minimum.

New innovative products are often offered at high prices at the introductory stages before competing substitutes are launched in the market. This practice is known as price skimming and businesses try to extract the most out of the novelty of a product.

When the competition is intense and products are homogenous, companies go for penetration pricing where the prices are set relatively lower than the prevailing rates in the market with the objective of attracting customers and quickly capturing market share.

Costing

No business would desire to sell their products at anything less than what it had cost them to make the goods available for sale going through the value-chain process. Costing mainly comprises of two parts – fixed cost and variable cost, which collectively forms the total cost. Total cost divided by the number of units produced gives the cost per unit. Thereafter, a profit margin is added to the cost per unit to arrive at the final price of a product. However, the price of a product cannot be determined only by its costing and desired profit margin. There are other factors like prices of competing products, price sensitivity, brand value, regulatory framework etc. which are discussed below. However, cost-based pricing provides a standard base or a starting point for business enterprises to get closer to the final price.

cost-based pricing provides a standard base or a starting point for business enterprises to get closer to the final price.

Competition and Competitors’ Prices

In the absence of competition and presence of a substantial market demand, a business enterprise can aim to assume the role of a market leader. Although this does not give them a free hand in fixing the prices of their products and services at will but with a reasonable pricing policy they can easily recover the costs and earn a healthy profit margin.
In the presence of competition, a business enterprise cannot fix the prices of its products and services without taking into consideration the prices at which its competitors are offering the same goods and services under the same conditions. But while considering the competitor’s pricing it is also relevant to take into account the degree of similarity with the competitors in terms of market share, production technology, value-chain process, distribution network, skills and expertise of workforce, process management, and brand status. A business enterprise cannot just price its products at par with its market competition without considering the strengths of the competitors. It is relevant to figure out the ability, flexibility and strategies of competitors in the pricing of their products.

In the presence of competition, a business enterprise cannot fix the prices of its products and services without taking into consideration the prices at which its competitors are offering the same goods and services under the same conditions.

Market Share and Dominance

A dominant player or a market leader enjoys a certain degree of flexibility in the pricing of their products. A dominant customer base is an indication of extensive operations, wide distribution network, economies of scale and brand loyalty. Because of this dominance, a market leader can stretch the prices of their products. Players with smaller market share do not have this vantage point. However, the market challengers, who are as good as the market leader as an organization and in terms of capabilities and competitiveness, engage into fiercely aggressive price wars with the market leader to capture more and more market share. Market followers, on the other hand, tend to play safe and avoid price confrontation. Niche players adopt a focused approach to target a very small and specific market segment. This gives them the liberty to charge premium prices for their high-end products and services.

Players with smaller market share do not have this vantage point. However, the market challengers, who are as good as the market leader as an organization and in terms of capabilities and competitiveness, engage into fiercely aggressive price wars with the market leader to capture more and more market share

Customer Behaviour – Price Sensitivity

Price elasticity refers to the degree of change in the demand for a product resulting from a small change in its price and it constitutes a very important element of customer behavior. That is why homogenous products offered for sale under the same marketing conditions are priced at the similar levels. However, business enterprises constantly try to differentiate their products from that of its competitors by altering the other elements of the marketing mix like promotional activities, delivery and distribution, product development etc. This helps them to decrease customers’ sensitivity to prices and price their products competitively.

Price elasticity refers to the degree of change in the demand for a product resulting from a small change in its price and it constitutes a very important element of customer behavior

Regulatory Framework

Companies cannot fix the prices of their products and services arbitrarily. There are laws and regulations governing business practices (also covering pricing) which have to be adhered to. The regulatory framework aims to ensure fair competition and prevent unfair trade practices in business. In the telecom sector, it was seen that even free services are bound by the rules and regulations of TRAI.

The regulatory framework aims to ensure fair competition and prevent unfair trade practices in business

The process of determination of the prices of products and services involve consideration of several internal and external factors which include business strategies, level and nature of competition, nature of products and services, costing, brand and positioning, customer behavior and so on. Everything at once may make this process look like an uphill task but a systematic, logical step-by-step approach can help a business get closer and closer to an appropriate price zone.

To know more about “Business Process Management” get in touch with our Retail Experts on [email protected]


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Author Bio

Rupal Agarwal

Chief Strategy Officer

Get Advice to Business Process Management


    PROCESS AUTOMATION

    The idea of having Ecommerce Consultants on-board from the beginning itself points towards reducing the involvement of the promoters in daily operations. Ecommerce Businesses willing to be a brand reaping profits & sustaining the competition must ensure that most of their processes should be automated. The more the manual intervention, the more would be the errors.

    In Ecommerce business, you get only 1 chance to impress the customer & if you mess up there, you lose the customer for long.

    Process automation in respect to all the activities pertaining to customers from order receiving to order fulfilment is a must for a seamless experience for the customers.

    Task Management is another grey area where most deadlines fail as 90% of the tasks are assigned manually & are forgotten, unheard, misunderstood or mistaken.

    YRC Team of Ecommerce Management Consultants helps to make maximum of the processes system-driven to ensure minimalistic manual intervention.

    VIDEOGRAPHY & PHOTOGRAPHY

    No matter how good your product is, the customer would know only if it looks good.

    Photography includes the following steps:

    • Cataloguing your products
    • Cataloguing your images
    • Backup your images (A few cloud storage solutions include Dropbox, Google Drive, Bitcasa, Apple’s Cloud Storage etc.)
    • Choose the right camera & lens (You may also outsource the photography to a third party agency)

    DIGITAL MARKETING

    Digital Marketing includes SEO & SMM. SEO i.e. Search Engine Optimization includes activities like back-linking, meta tags, blog-writing etc. to ensure your website ranks on the 1st page on Google Search.

    Next comes SMM i.e. “Social Media Marketing” which as the name suggests including promoting your products on all the social media sites, email marketing, influencer marketing & several other BTL activities.

    These activities are going to be recurring & would decide the traffic on the website, the conversions, whether the right target market is tapped, the likes, the views, the orders, the reviews & much more. YRCs Ecommerce Consultants create a budget for digital marketing right from pre-launch to launch & for each month thereafter.

    Building digital marketing strategies in coordination with the agency, selecting them to signing them off would be the role of YRC.

    This ensures seamless coordination, detailed interactions & desired execution as it is always advisable to work with a single agency than multiple of them.

    IT INTEGRATION

    Selection of the right software for smooth functioning of back-end operations right from production to webstore display would be suggested and integrated by YRC Team.

    YRC’s Team defines SOPs of Product Movement, maps it with the locations & people. They then create a blueprint of all the features required in the software & help in shortlisting & selection.

    IT Integration involves connecting your offline inventories with real-time online webstore so when a sale occurs, inventories get deducted real time across offline as well as online platforms.

    This helps in accurate inventory management, maintaining the MOQs, re-order levels & achieving the optimum inventory levels.

    Some popular software include unicommerce, viniculum for your front-end website management & Genisys for your entire back-end Purchase, Production, Accounting, Invoicing etc. management.

    WAREHOUSE & LOGISTICS PLANNING

    • How many cities or countries you wish to sell in?
    • Where should your Warehouse be located?
    • Should you have one warehouse in each country or city?
    • Should you be having your own delivery team in your base city?
    • Would the 3rd party vendors be reliable? What happens when they lose or misplace your product during delivery?
    • How should I manage the logistics if my goods are coming from different countries?
    • How should the goods be stored and barcoded?
    • How much space do I require for warehouse?
    • I am sure several such questions must be haunting you while you think of starting your own fashion ecommerce brand.

     

    At YRC, our warehousing and logistics experts can help you devise a strategy for all of the above mentioned queries and much more.

    We design the layout of the Warehouse considering the inward, goods processing, software entry, barcoding, outward, goods return, scrap storage, goods stacking & much more.

    Logistics route plan is devised considering the manufacturer to your warehouse and from there to last mile delivery locations.

    UI & UX DESIGNING

    This Step involves 03 distinct parts:

    Part 1: Choosing the right Platform:

    From several platforms available in the market right from Shopify to magento, woocommerce, prestoshop, wordpress etc. you must choose the one that fits best for your business

    Part 2: UX Designing:

    “UX” denotes User Experience, which if put in simple language is building the functional requirements of the website.

    UX Designing includes designing the features required in the website, customer journey map, website features, the browsing features, navigation features, ecommerce order management process flow, checkout cart features, catalogue management, ecommerce payment system, cross selling features & much more.

    “As per statistics, 68% of the customers abandon the carts before payment”

    An interesting UX ensures the customer sticks on to the website for a longer time.

    Part 3: UI Designing:

    UI stands for User Interface, which means designing the look and feel of the website. UI includes using the right colours, elements and the entire aesthetics of the website.

    A good User Interface ensures the user completes the task that he has come for. It navigates the user through the journey of the brand in the simplest but most effective way.

    The UX designer maps out the bare bones of the user journey; the UI designer then fills it in with visual and interactive elements.

    If User experience is the bare bone, user interface wraps it up with an attractive cape.

    At YRC, our team if experts can help you develop the entire User Journey to ensure it is engaging!

    SAMPLING & PRODUCTION

    This step follows the “Designing” Phase, whether you have an in-house design team, freelance designers or an outsourced design company. It is one of the most exciting phases, as here you see your designs turning into products & your ideas turning into reality.

    In most start-up cases, production is outsourced i.e. brands tie-up with the established manufacturers/ job-workers to get their products manufactured.

    Sampling involves multiple 04 Stages, Fit-Sample, Prototype Sample, Pre-Production Sample & the Production Sample.

    Prototype Sample is the first sample provided to the buyer. It can be in any fabric/ colour. This sample is just to understand whether the product design looks equally great in reality.

    Fit Sample, as the name suggests is prepared to check the fit of the garment i.e. the various sizes, length, width etc.

    Pre-production is made by the actual production line. Here the stitching quality and other aspects related to manufacturing are checked. This is the last stage where rejection can be accepted.

    Production Sample is made before the production which is the replica of what is going to be finally produced.

    Once you are through with all this, you are good to go ahead & get your goods manufactured.

    PRODUCT DESIGNING / SOURCING

    Product Designing or Sourcing is the heart of the Ecommerce Fashion Brand.

    Product Designing / Sourcing can be done in several ways, as follows:

    • In-house Design Team
    • Freelance Designers
    • Outsourced Design Team
    • Ready Product Sourcing (From Manufacturer or Wholesaler)

    At YRC, we evaluate your business strategy & business model to arrive at the decision, which of the above ways would be best-fit for your business. In certain cases, product sourcing may be a combination of the above.

    These are the people who are going to build your brand! Whether they are the designers or merchandiser, your brand look is going to be in their hands.

    If you are designing each garment from the scratch, the sourcing would play crucial role in developing design identity of your brand.

    Sourcing includes fabric, trims, lining & all the raw material required to build the garment.

    BRANDING

    Branding is the “Look of the Brand”, right from logo to tagline, the colours used, the brand story, the brand communications on social media, the packaging & all the other aspects which speak directly or indirectly to the customers. Branding constitutes the look & feel of the brand & hence must be thoughtfully planned to match with the product that we are selling.

    Branding must appeal to our target audience. Example : A golden colour logo depicting finesse, art, richness, premium, however beautiful it may be individually cannot go with a brand selling affordable kids wear products. So, your logo must be in-line with your brand positioning, whether you are an expensive brand or a luxury brand or a value for money brand, it must be depicted from your “Branding”.

    It is an integral part to attract the target audience.

    ORGANOGRAMS & SOP’s

    Organogram is the “HR Blueprint” of the business which is created at the onset, to map out the team required across each function at various stages of the business. At the launch, only key people need to be got on board to ensure the project gets started & at this stage, all of them need to multi-task. Similarly, certain financial as well as operational goals are set for addition of the further team. Example, for the operations team, we hire 1 operations manager during the pre-launch phase & we add 1 more only when the business kicks-off & we reach a volume of selling more than 1000 pcs/ month or a turnover of more than 0.1 million USD.

    SOPs are Standard Operating Procedures, a bible to run the entire organization right from Sales, Purchase, HR, Order receiving to Order fulfilment, Inventory Management, Accounts, Warehouse, Logistics, Supply Chain, Production & all the other relevant functions for the business. Business must be organized from its first day of operations; only then the tasks can be delegated.

    At YRC, we design the organization structure, the processes, and approximate time taken to execute each process, job profile of every member within the organization, their KRAs, KPIs & the Reporting Structure.

    CRITICAL PATHWAY

    Critical Pathway Analysis (CPA), is a project management technique which cannot be overlooked while launching an ecommerce fashion brand. Brand launch process is cumbersome with multiple inter-dependent & time-bound tasks involved, which need to be tracked to ensure the project remains on track.

    CPA outlines key tasks across the project, their turnaround time (TAT) & the dependencies of tasks upon each other. It identifies the sequence of tasks, their interdependent steps from inception to completion, their criticalities, and their dates of onset, target dates of completion along with the key responsible person for the respective activities. Critical Pathway helps in understanding the unimportant & not urgent tasks which may jeopardize the execution of the project because of an unexpected snag! It also maps out the potential bottlenecks which might be posed because of the dependencies of tasks upon each other & cases where the next task cannot be commenced before the completion of the previous one.

    CPA detects the minimum & the maximum time involvement of a particular individual or team to execute the task, thereby arriving at the overall deadlines associated with the project.

    At Your Retail Coach, we design the Critical Pathway & review it periodically to ensure the project is on track & the progress is measurable.

    BUSINESS STRATEGY & BUSINESS PLAN

    Business Strategy includes the vision, mission, goals, business model, business plan & strategy for all the functions within the organization.

    Business Strategy is a well-defined plan that outlines who, what, where, why, how & when for the company; for example, who would be the target market, how to attract the target audience, when to launch new products, where to operate from, how to handle competitors, what would be the USP, what would be long term goal of the organization & several other answers to the 5Ws of Strategy.

    Business Strategy aligns the organization towards a common goal. Business SWOT helps company to identify & overcome their weaknesses & focus to sharpen the strengths. Business strategy forecasts future risks and helps business in building skillsets to overcome the potential threats.

    YRC’s Business Plan focuses on creating a “Blueprint” of the business, thereby deriving the feasibility of the concept & gauge whether the opportunity is lucrative to invest time, energy & effort. Business Plan creates cash flow understanding i.e. building inflow & outflow cash projections from Week zero to week 60 i.e. 05 year projection. Business Plan calculates the capital investment, operating costs, one-time costs, recurring costs & all the other numbers relevant to obtain the breakeven sales, return on investment, return on capital, internal rate of return & several other ratios. Business Plan is also one of the important requirements if you are targeting the “Investor Route”. Fund raising becomes extremely transparent & channelized. With business plan panned out clearly, the business will know until what point must it be stretched & where to stop, which reduces the probability of unplanned investments.

    MARKET RESEARCH

    Starting the concept of Ecommerce Fashion brand with Market Research ensures we get detailed understanding of the industry & this research report also acts as a social confirmation for your concept. Market Research helps in understanding the target locations, their population, potential online buyers for your product, competitors for each category, and top selling products of the competitors, competitors’ price range, offers & their responses & much more. Market Research helps in thorough understanding of your brand position as compared to our competitors. It helps in identifying gaps in the market, in your category along with the scope of the said product in the desired market. This will help in validation of your concept & prevents you from making the same mistakes as your fellow brands, eventually saving your time, energy & efforts. This phase is also a make or a break phase, as the market research study may at-times come up with some eye-popping numbers & statistics which might compel you to re-think on your product or category that you are planning to sell or alter your entire concept itself!! Market Research Reports analyse the competitors’ webstore for their traffic, conversion & sales. This is extremely valuable information to derive our inventory budgets & projections, which takes us to our next phase.