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Finding the perfect price: a delicate balance



Author: Matteo Cerrone

Publication date: 09.08.2024



Determining the right price for a product is a complicated task because its value depends on and changes based on many different factors. It is a delicate balance between what the market is willing to pay, the costs of production and the goal of maximizing profits. But how do you find this balance?

 

Perceived value

 

The starting point is always the customer: what they are willing to pay for your product and what benefits they get from it. Perceived value is subjective and depends on a myriad of factors, from the quality of the product to its uniqueness and to the image of the brand. A consumer will be willing to pay more for a product that solves a specific problem or that makes them feel special.

 

Costs and margins

 

Of course, production costs cannot be ignored. Raw materials, labor, marketing and distribution require expenses that affect the final price. Furthermore, the price must not only cover the costs, it must also ensure a sufficient profit margin to grow the company. Too low a margin could compromise the sustainability of the business, while too high a margin could discourage sales.

 

Competition

 

Competition represents a point of reference: observe what your competitors do, what prices they charge and what their strengths and weaknesses are. By comparing yourself with your competitors you can better understand where to position your product. But be careful: copying the prices of others is not always the best solution. You could find yourself in a price war that erodes everyone's profit margins.

 

Pricing strategies

 

There are different pricing strategies, each suited to specific contexts. You can start from the costs and add a margin, you can base it on the value perceived by customers, you can choose to vary prices based on demand or seasonality or you can create packages with complementary products. The important thing is always to find a solution that works for the customer and that allows you to support your business.

 

The psychological factor

 

Price is not just a number, but a message. A high price can convey an image of luxury and quality, while a low price can attract consumers who are more careful about saving. Numbers have a strong psychological impact and marketers use various strategies to influence purchasing decisions. Use these methods too but always be careful not to deceive the customer.

 

Conclusion

 

In conclusion, finding the perfect price is an iterative process that requires flexibility and adaptability. There is no magic formula, but by following these tips and experimenting, you can find the solution that best suits your business.


Setting a price that is too low certainly risks damaging your image and reducing your profits. Excessively low prices could make your product perceived as low quality and may not cover the costs of expenses (it is  important having a clear vision of production and distribution costs). Likewise, prices that are too high also have disadvantages: If the price is too far from consumers' expectations, they will choose an alternative product and you will drive customers away and lose sales.


Remember to never be too rigid: the market is dynamic, and your prices should be too. Market conditions can change over time, and you must be ready to adapt.



 

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