How to price your products

Setting the right prices for your products is critical to the success of your business. Pricing not only affects your profit margins, but also has an impact on your customers’ perception of value and demand for your products. In this article, we will explore the importance of setting the right prices and how price can influence the perception and demand for your products.

Market research

Before pricing your products, it is crucial to conduct thorough market research. Here are two key aspects of market research in relation to pricing:

The importance of understanding the market and competition before setting prices

Before pricing your products, it is necessary to understand the market you are in and to know your competitors. This involves analysing your target market, identifying your direct competitors and assessing their pricing strategies.

Understanding the market will help you determine the range of reasonable prices for your products. It will also give you information on how to position yourself in comparison to your competitors. If your product offers unique features or superior quality, you may be able to justify higher prices. On the other hand, if your objective is to compete on price, you will have to adjust your margins and set lower prices.

How to research and analyse prices of similar products in the marketplace

Research and analysis of the prices of similar products in the market is essential to establish competitive prices. Here are some key steps you can take:

  1. Identify similar products: Identify products that are comparable to yours in terms of features, quality and market segment.
  2. Gathers price information: Research the prices of these products in different sales channels, such as physical shops and online shops. You can also use price research tools to get more accurate data.
  3. Analyse pricing strategies: Look at the pricing strategies used by your competitors. This may include discounts, special offers, package pricing, among others. Analyse how they adjust their prices according to demand and market conditions. You can use tools such as the Competitor Monitoring.
  4. Consider your value proposition: Consider your product’s differentials in terms of quality, additional features, customer service or other aspects that add value. Assess how these differentials can influence your pricing strategy.

By researching and analysing the prices of similar products in the market, you can gain a clear understanding of how your prices compare to those of your competitors and how you can strategically adjust them.

Determine costs

The first step in setting prices is to calculate the production costs. Consider the following aspects:

  • Calculation of production costs: Assess the costs of materials, labour and overheads needed to manufacture or purchase your products. Be sure to include all relevant expenses to get an accurate picture of your costs.
  • Consideration of profit margins: Determine your desired profit margins. This will depend on several factors, such as the market, competition, and your financial objectives. Setting a reasonable profit margin will help you cover costs and make a profit.

Pricing strategies

There are different pricing strategies you can use. Two common approaches are:

  • Cost-based pricing: Set a price based on production costs plus a profit margin. Calculate your total costs and add an appropriate mark-up percentage to determine the final price. This strategy ensures that you cover your costs and make a profit.
  • Prices based on perceived value: Set prices based on the value customers are willing to pay for your products. Consider factors such as quality, exclusivity, convenience or unique features of your products. This strategy is based on the idea that customers will pay more for products with a higher perceived value.

Psychological pricing

Psychological pricing is a strategy that exploits the psychological perception of customers. Some popular techniques include:

  • Right numbers: Use numbers that are perceived as fair or rounded, such as 10.00€ instead of 9.99 €. This creates the feeling of a more attractive and memorable price.
  • Reference Price: Set a higher price for a product and then offer a discount, which creates the perception of a special offer. For example, “Original price 50€, now 39.99€”.
  • Packages and options: It offers different pricing options, such as packages with multiple products or service levels. This allows customers to choose the option that best suits their needs and budget.

Setting the right prices is essential to the success of your business. Consider production costs, profit margins and pricing strategies based on perceived value or cost. In addition, use psychological pricing techniques to influence customer perceptions. By implementing these strategies effectively, you will be able to set fair and attractive prices that drive the growth and profitability of your business.

Price segmentation

Price segmentation is a strategy that involves dividing customers into groups and setting different prices for each segment. This technique is based on recognising that different groups of customers have different levels of willingness to pay. In the following, we will explore what price segmentation is and provide examples of how it can be applied.

Price segmentation focuses on identifying groups of customers with similar characteristics and setting specific prices for each group. Some key aspects of price segmentation are:

  • Identifying customer segments: Analyse your existing and potential customers to identify groups with similar characteristics and needs. These segments can be based on demographic, geographic, psychographic or buying behaviour factors.
  • Differential pricing: Once you have identified customer segments, set specific prices for each group. This may involve offering lower prices for price-sensitive segments, such as students, or premium prices for segments willing to pay more for additional features.

Examples of price segmentation include:

  • Prices for students: Many companies, such as cinemas or transport services, offer special discounts for students, recognising that this segment has less disposable income but still has an interest in their products or services.
  • Premium prices: Some luxury brands set higher prices for segments willing to pay more for the quality, exclusivity or experience they offer. This creates a sense of exclusivity and aspiration in target customers.

Dynamic pricing strategies

Dynamic pricing strategies involve adjusting prices according to factors such as demand, availability or time. Important aspects of dynamic pricing strategies include:

  • Price adjustment according to demand: Increase prices at times of high demand and decrease them at times of low demand. This helps to optimise revenue and balance supply and demand in different periods.
  • Price adjustment according to availability: Set different prices based on inventory or capacity availability. For example, flight prices may increase as available seats are sold out.
  • Time-dependent price adjustment: Some industries, such as hospitality or tourism, adjust prices according to the season or peak periods, such as holidays or weekends.

Examples of dynamic pricing strategies include:

  • Seasonal prices: There are certain products that change price throughout the year depending on their demand, for example sun creams, swimming costumes or coats. The first one is usually cheaper in the winter months, while the other two are usually cheaper in the summer season.
  • Last minute prices: Airlines or entertainment companies can offer last-minute discounts to fill seats or vacant seats, allowing them to generate additional revenue rather than having an unsold product or service.

Testing and price adjustment

It is important to test prices and adjust them according to customer feedback and market data. Some key aspects of price testing and adjustment are:

  • Price testing: Test different price levels and observe how customers respond. This may include testing higher prices, lower prices or changes in the pricing structure.
  • Evaluation of results: Analyse the results of price tests, including the impact on sales, profitability and customer satisfaction. Use this information to make informed pricing decisions.
  • Price adjustment according to market data: Monitors market changes, such as competition or cost fluctuations, and adjust your prices accordingly. This allows you to maintain a competitive and profitable pricing strategy.

Price segmentation, dynamic pricing strategies and price testing and adjustment are key elements in setting effective prices for your products or services. By segmenting customers, adjusting prices according to demand and availability factors, and continually testing and adjusting, you can maximise your revenue and meet your customers’ needs more accurately. Remember that pricing is a dynamic process that requires constant adaptation and attention to the market and customer preferences.


Setting effective prices for your products is essential to the success of your business. Throughout this article, we have explored the key steps in pricing your products, including costing, pricing strategies and the use of psychological pricing. It is important to strike a balance between profitability and competitiveness when setting prices.

Reviewing the key steps to effective product pricing:

  1. Determination of production costs, including materials, labour and overheads.
  2. Consideration of desired profit margins to establish a base price.
  3. Use of pricing strategies, such as cost-based pricing or perceived value-based pricing.
  4. Application of psychological pricing to exploit the psychological perception of customers.

It is important to remember that each business is unique and may require specific pricing approaches. Therefore, it is advisable to adapt these steps to your business context and to test and adjust to find the most effective pricing strategy for your products.

FAQs on product pricing

  1. What is the difference between price and value in product pricing?
    Price is the monetary value assigned to a product, while value is the subjective perception that customers have of the product in terms of benefits, quality and satisfaction.
  2. How can I research competitors’ prices effectively?
    You can research competitors’ prices by visiting their websites, physical shops or by using online tools that track and compare the prices of different competitors.
  3. What costs should I take into account when pricing my products?
    You should take into account the costs of production, including materials, labour and overheads. Also consider the costs of marketing, distribution and any other expenses associated with selling the product.
  4. What are the most common pricing strategies used by companies?
    Common pricing strategies include cost-based pricing, perceived value-based pricing, psychological pricing, price segmentation and dynamic pricing.
  5. What factors should be considered when using psychological pricing?
    When using psychological pricing, you should consider factors such as customers’ psychological price thresholds, perception of value, competition and market context.
  6. When is it advisable to use price segmentation for my products?
    Price segmentation is recommended when you have different customer segments with different levels of willingness to pay. You can use it when there are specific features or benefits that justify different prices for each segment.
  7. How can I implement dynamic pricing strategies in my business?
    To implement strategies for dynamic pricing, you should monitor demand, availability and other relevant factors. You can adjust prices according to demand, seasonality or product availability.
  8. What are some tools or methods for price testing?
    Some tools and methods for price testing include surveys, online price experiments, real-time price analysis and A/B testing.
  9. Should I adjust my prices based on customer feedback?
    Yes, it is important to consider customer feedback and assess whether current prices meet their expectations and needs. You can make price adjustments based on customer feedback to improve customer satisfaction.
  10. How can I assess whether my prices are effective and competitive in the market?
    You can assess the effectiveness and competitiveness of your pricing by monitoring sales, analysing profit margins, comparing with competitors’ prices and gathering customer feedback.

Remember that effective pricing requires a strategic and continuous approach. Maintain a balance between profitability and competitiveness, and make adjustments according to market data and customer preferences to achieve success in pricing your products.

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