By Art Ilano

Pricing one’s product or service is often a stumper. Are we pricing too high? Are we pricing too low? Set a price and this will often result to pricing anxieties.

Here, then, is a crash course in pricing that, hopefully, can bring about a bit of much-needed peace of mind, at least when it comes to matters of price setting.

How to price low

Ever had the experience of looking at a product’s price and saying “It’s too cheap. It must be inferior?”

Many product managers make the mistake of pricing too low, perhaps out of desperation, or perhaps out of a sense of insecurity about their products.

The problem is that the market senses too-low prices as a sign of weakness (or yes, desperation too). Price too low and you become typecast as a cheap, inferior good.

The sad fact is that pricing too low almost never works as a sustainable strategy, except perhaps if the economy is in a permanent recession. First of all, the market ends up distrusting your product. And second, your business becomes prone to financial woes since you are essentially starving yourself.

How to price high

If you want to compete using a premium product, however, then note that product quality, features and packaging become very important. Without the sensory cues about your product’s superiority (no matter how artificial it may be), then your product will simply come across as being overpriced.

A strong brand identity also counts. Premium strategists invest in their brand value, taking pains to ensure the integrity of the brand by way of stringent guidelines on the use of the brand as well as all materials involved in conveying the brand.

Strangely enough, pricing a product higher can actually help increase sales, particulary in the case of so-called “me” products, or products that are bought to express one’s self.

Classic case: a product called Fleischmann’s Gin was dying in the market, where it was sold at US$ 4.50 per 750ml bottle. When the manufacturers RAISED their prices by 50 cents, however, a funny thing happened–sales actually rose!

These are just some of the basics that you may want to keep in mind when pricing your product or service. It is by no means comprehensive, but at least it’s a start. And perhaps the biggest lesson you can take home from all this is that, let’s face it, pricing is all in the mind.

The author is a business professor at the University of the Philippines. He is also a management consultant and is the Editor-in-Chief of SME Insight magazine.

For the full article, read the January-February 2007 issue of SME Insight, the magazine for small and medium enterprises. For subscriptions, call 759.2022 or 813.4396 loc. 816 or e-mail hipcards@hip.ph.