Marketing Series: Pricing for a Marketing Edge
Determining a Price is a form of marketing, by opening the floodgates to a certain audience and closing it to another. In this blog, I will go over Cost, Price, and Pricing Strategies as part of your overall marketing strategy.
Pricing can be a HUGE mystery, but it is vital for the success of your brand and your business. There are many components that go into your brand’s price, and it is important to have done the branding work first in order to understand your audience and target market and how your pricing will affect the perception of your brand.
Cost
Cost is a component of what the ultimate retail price will be. Cost can be broken down into Materials, Labor, Logistics, Marketing, and overhead. For example, take a plain cotton T-Shirt, the material is 100% cotton and Polyester core Cotton thread. There is also a size label, washing label, hangtag, poly bag, and any other packaging. These are all of the materials associated with this particular product. Next is labor, you will need to pay the factory workers to make your product. After that is logistics, depending on your production there will be a cost associated with shipping your inventory as well as fulfillment. In order to sell this product you will need a marketing budget to allow you to book trade shows, advertise through paid ads or create content for your social media channels. Finally there is overhead cost. This is associated with your company’s rent, utilities, staff salaries, office supplies, software etc etc. Your costing sheet per product can be dynamic or simplified. It’s often good to include a buffer for general overhead costs. This my bump your wholesale price higher, but it can help you sustain your business. In general, your per unit cost should cover your material costs, labor costs, logistics, and an average for overhead and marketing.
Value
The next component of your ultimate price will be Value. Value can be different from brand to brand because what really matters is analyzing what are your Brand’s Values. For example, If your brand’s value is sustainability, then the cost of your product should reflect sustainable materials, labor, etc. In addition, your margin percentage should also reflect this value. This does not mean price your sustainable goods at high end luxury pricing if your materials, labor and brand experience does not reflect luxury, but it is important to find the price that is relevant to your product and values. Value should also be assessed with the following: your brand is a monopoly supplier of your product, your brand is a market leader, your brand is a cost leader, your product is new to market, or you have a niche brand. For example, Apple is seen top in class in terms of its product line, therefore the Apple customer is willing to pay a premium for their products, regardless of the products actual production costs.
Price:
Determining the right price to sell your product is more of an art than a science. There are many factors that go into your pricing strategy. We have already talked about your cost per unit. There are several other factors that you must evaluate before setting your price. These can include your competitors’ pricing, your brand’s perceived value, and your marketing penetration strategy. These are a lot of elements to try to get right. The good news is that pricing is not a permanent decision. You can test different prices to see which one is the most appropriate for your brand.
Sometimes, you can enter a new market with a price below the competition and get instant market penetration; however, if this price is not high enough for you to cover costs and survive, you will not be able to stay in business for the long term. A low price can generate high sales volumes and good cash flow while a higher price can generate lower sales volume but higher profits. You should be ready to test several different prices to see which one brings you the right combination of consumer value perception and profit.
To arrive at your first price sometimes it is a good strategy to start with a price that covers all the individual unit costs and a reasonable profit markup. That is a good starting point, but you should also test a higher price and see what happens. Sometimes, especially in fashion, a product can be perceived as having greater value if it is priced higher. That is called luxury pricing and depending on your brand image that might be a good image for you to convey.
There are several marketing strategies you can achieve with your pricing. A significantly lower price may help you grow, break into a new market or eliminate a competitor. A competitive price may help keep you established within a market and even build brand loyalty. A higher price can help you maximize profits and give you a more exclusive value perception.
You must also be aware of the two types of prices. There is your wholesale price that you charge your retailer vendors for a large order of your product. This can vary according to the size of their order, the retailers desired markup, and other factors. All retailers have different programs, payment terms, shelf allowances, and other things that can affect the price you can sell to them for. Then there is your retail price that you charge when you sell directly to your customers on a per item basis. This includes your website, trade shows, Amazon, QVC, or some other ecommerce site. It’s important to make sure what your retailers are ultimately charging for your product is close to what you are selling it for on your direct to consumer sites and outlets. If your direct to consumer price is too low then consumers will buy directly from your website and leave all your inventory sitting on your retail partners’ store shelves. This can be costly because if your retailer returns a large order of unsold inventory you often are stuck with the costs and no sales. That can lead to a cash flow and profit disaster.
There are many factors that go into your pricing as you use it to generate revenue and further define your brand. There is no one “perfect” price. It is important to stay flexible, price your product for the marketing and profits goals you want to accomplish, and test different pricing strategies to see which one is the best for your product, your brand, and your business.
Need help with pricing your product? Join “The Perfect Price” workshop on May 16th & May 23rd 2022 Where we will go over Costing, and Pricing your product. The Worship will also include Q&A and 1:1 pricing advice from Anna Livermore. For questions please contact: vmorainquiry@vmora.com
Have a Marketing plan already, but need help with producing your line? V.Mora can help you take your brand voice and turn it into products. We will help each step of the way to design, develop patterns, and connect with the right vendors for your project through our Production Development and Management service. Please contact us if you are in need of the Production Development and Management Services below:
Sourcing
Technical sketches
Pattern Making
Prototype making
Sample Making
Fittings
Digitizing and Grading
Marker Making
Manufacturing
Please contact us at: vmorainquiry@vmora.com
