The Right Pricing

What’s the best way to price a product or service? What are the things that you have to take into consideration? Most business owners who are not very sure what to do will simply use their competitor’s pricing and either price below it or above it. The question to ask then is, how would you know that their pricing strategy is right?

Let’s look at the factors you need to take into consideration when pricing. First, you need to determine your pricing objectives. It basically defines what we want to achieve. There are 3 pricing objectives to consider.

1. Revenue-Oriented Pricing
It is setting a price that will maximize revenue from the target market. For example, if your daycare centre is offering something which other daycare centres are not able to offer such as a particular curriculum, then you can consider this objective.

2. Operations-Oriented Pricing
It seeks to balance supply and demand. It introduces cheaper prices during the lull periods (or when demand is low) and raises prices during peak periods (when demand is higher). For example, during the holiday season, when parents do not send their kids in, you can offer short courses / electives.

3. Target Market Pricing
It uses different prices for different target markets. For example, you can offer parents who put more than one child at your daycare centre a discount from parents who only place just one child at your centre.

Next, you need to think about the pricing strategy you are intending to adopt. Pricing strategy defines how you are going to achieve your objective. There are 3 different strategies in which you can adopt.

a. Market skimming
Do you think that your daycare centre or its services generates added value? Do you think your customers will be able to afford it? Are you the only or selected daycare centre that is offering it? If you answer is yes, then you can consider market skimming. It basically involves charging the highest possible price. You will need to decide if whatever you are offering is something which the customer values. For example, you are offering a particular curriculum which other daycare centres are not offering and you think that this value added curriculum is something which your customer will be willing to pay for. Or your centre is the only centre in town that closes at 8pm and it is something which you think your customer values and is willing to pay for. To charge a higher price will also mean that you need to communicate that to your potential customer through effective promotional means.

b. Market penetration
If there are a number of daycare centres and all of you are offering basically the same curriculum or services, then you should consider penetration pricing. It basically means keeping the price low in order to gain a greater market share.

c. Price adaptation
The last and most complicated strategy is price adaptation. It is offering different prices to different target market. For example, parents who places 2 or more children at your daycare centre is offered a discounts. But what happens when one of the sibling becomes of school going age. It might be difficult to revert back to the higher price.

Pricing strategies is something which plague many business owners. Whilst pricing lower might mean higher chances of increasing recruitment, the low prices might mean that you need to cut back on some luxuries such as quality meals or curriculum, which could impact the image of your daycare centre. Therefore, it is important to think very carefully before setting a price because in most instances, it’ll be difficult to reverse that decision.