Analyse pricing influences

Understanding how external factors can influence how you price yourself is the key to finding an optimum price for your products or services.

When researching your market, analyse your data and consider how your results will impact your price. These market influences will also help guide your choice of pricing strategy to counter any unfavourable conditions.

External influences

Price sensitivity in the market

Price sensitivity refers to the changes in customer demand as a price changes. For example, commodity goods such as petrol have high price sensitivity. The difference of a few cents in price can impact a customer's behaviour.

Some markets are more sensitive to price increases than others. Price sensitivity can change over time based on a number of factors including changes in the economic environment, competition or demand. Factors other than price, such as quality, service, and uniqueness, can also influence price sensitivity.

Level of demand

Demand for your products or services will have a great influence on price. Generally, the higher demand for your product, the higher you can price your product and services. Demand can also be influenced by price. For example, lowering the price of a product can increase demand temporarily.

Level of Competition

Competition can impact your price and its sensitivity. Generally, the less competition you have, the higher demand there is for your product. Changes in your competition may also impact your price, such as a new competitor entering the market could affect the level of demand for your products or services.

Your competitor's activities can also have an impact on your pricing decisions, whether they have a new feature, an advertising campaign running or a price reduction.

Government regulations

Depending on your industry or how global your market is, local and international regulations can sometimes influence your pricing decisions. For detailed information on pricing regulations, see our Legal obligations page.

Researching price influences

Research can help you find the optimum price for your products. Generally, the optimum price is one that your customers are willing to pay, without it affecting your profits. This isn't a one-off activity, you must monitor your key pricing influences regularly as part of your overall market research to ensure your prices stay competitive and you still meet your customers' expectations.

Market testing

To help you determine how much your customers are willing to pay for your product/service you should perform some form of market testing. As a start, research your customer's purchasing behaviour such as:

  • their current and anticipated demand for this type of product/service
  • what they pay for similar products/services
  • the quantity likely to be purchased
  • additional features they value.

With this customer information in mind, you can then develop a price comparison offering a number of different product/service options for testing to help you determine a price range that is acceptable.

Competitors

In writing your marketing plan, you should have already determined who your direct competitors are and how your business compares to them. This information can be useful in helping you determine your price point. If you decide to use your competitors' prices as a guide, be careful that it doesn't dictate your prices too much, as it can seriously undervalue your product/service and drive down your profits.

When you compare your business to competitors, it's also important to ensure you look at the business as a whole and compare on other value-based traits (such as special features, quality and customer service) as well as price.

What to do...

  • Download our marketing plan tablet app, MarketMyBiz for iPad and Android devices.
  • Consult an experienced business adviser, accountant or solicitor.
  • Use our free Advisory Services search to find a low-cost business adviser near you.
  • Find out more about Export pricing and quotations.
  • Go to our Events search for seminars on marketing and pricing near you.

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