How to Correctly Price Your Product or Service. A Comprehensive Guide to Pricing.
How to Correctly Price Your Product or Service. A Comprehensive Guide to Pricing.
discover | Wednesday - 09 / 04 / 2025 - 7:29 pm
The right price for products and services is fundamental to the success of your business. It goes beyond being just a number that determines revenue to become an influential element that enhances your product’s presence in the market, your ability to compete, and the sustainability of your profits in the long run.
How to Correctly Price Your Product or Service. A Comprehensive Guide to Pricing.
Because setting the ideal price requires a precise scientific methodology, it necessitates a deep understanding of accounting elements, starting from production costs to analyzing the target market, and finally, determining the targeted profit margins.
In this comprehensive guide, we provide you with a roadmap for the pricing process of your products, focusing on the accounting aspects of price that ensure achieving a balanced equation between cost, profitability, and competitiveness in the market.
What is the concept of pricing?
Pricing is the process of setting a selling price for a product. It is a fundamental factor that directly affects the project’s competitive position, market share, and potential profit margins.
Therefore, it is essential for those conducting a marketing feasibility study to pay close attention to analyzing the relationship between price and demand, as well as monitoring changes in competitors’ prices. These changes may result from the entry of new producers offering the same commodity or competing alternatives in the market. This necessitates a thorough study to determine the optimal price that balances consumer appeal and the project’s sustainable profitability.
What are the essential marketing elements that accompany the price element in the marketing mix group, and does price element differ from the rest in the group?
Price is one of the essential elements in the marketing mix group, along with product, place, and promotion. However, the price element differs from the other elements, as it represents the primary source of revenue, while the other elements require investment costs to ensure their success.
Accordingly, product pricing constitutes a crucial factor that directly impacts the profitability and sustainability of the company in the market.
What are the goals of pricing in the first place?
When the management of any company or corporation develops a pricing model for a product or service, it takes into account a set of goals that directly affect pricing in accordance with the strategic vision of that management.
Here are the most prominent of these goals:
1- Continuity in the market:
Pricing aims to set a suitable price that attracts consumers and maintains their loyalty, even in the face of intense competition.
By offering a balanced price that meets customer needs, the service or product can firmly establish its position in the market and thus remain a sought-after product for a long time.
After achieving a broad customer base, the pricing strategy can be re-evaluated to maximize profits while maintaining market share.
2- Increasing profit margin:
Companies always seek to maximize their profits by pricing their products or services in a way that reflects the state of supply and demand and the strength of competition in the market. For example, if the demand for a particular product is high, its price is expected to rise as well, which contributes to increasing the profit margin and achieving greater financial returns.
3- Dominate over the market:
In some cases, companies adopt a low pricing strategy with the aim of capturing the largest market share, where they offer their products at competitive prices to increase demand for them.
This approach leads to an increase in sales volume, which contributes to reducing the cost of production per unit and achieving a strong competitive advantage in the long term.
4- High Pricing for Innovative Products:
When a company like Logix launches an innovative idea or product in the market, it often sets a high price for it, reflecting the increase in production costs (resulting from the need to provide all the features that the product enjoys in one package).
This approach is very similar to the pricing strategy followed by major technology companies when they launch their new products.
This strategy is commonly used in the technology sector, where major companies charge high prices for their advanced devices, based on the added value and innovation they offer.
After reviewing the nature of product pricing and its objectives above, some may wonder about the best strategies companies adopt to price their products. Follow us, as more useful information can be found below.
Product Pricing Strategies for 2025:
At Logix, we receive many inquiries, most notably: “How can I determine prices properly?”
To address these inquiries, our experts provide specific and customized strategies for product pricing. However, before we present these strategies to you, we would like to direct the following questions to yourself:
– What problem does your product solve for the customer?
– How does this solution affect the customer’s daily life?
Determining the ideal price requires a delicate balance. Too high a price may alienate customers, while too low a price may harm your profit margin and brand positioning. Therefore, understanding the value you offer to your customers is essential in the pricing strategy.
Let me also tell you something important, which is the significance of geographical pricing: For example, the Kingdom of Saudi Arabia extends over a vast area, where the cost of living varies significantly from region to region, which calls for the adoption of pricing strategies that are commensurate with the economic conditions of each region. Even within major cities, prices vary depending on the market conditions in those cities (as each neighborhood may have different economic and social characteristics).
Adopting a geographic pricing strategy – or partial pricing – helps you to:
– Optimize your prices to suit each region.
– Maximize your profits.
– Meet customer expectations in each market segment.
– Adapt to varying levels of competition in each location.
We have now reached one of the most important points that concerns most customers, which is the most prominent product pricing strategies and the accounting aspects of pricing.
Don’t stop reading, as the following paragraphs will reveal to you the most important methods and techniques used in determining prices, and how to choose the right strategy to ensure achieving a balance between profitability and competitiveness in the market.
Product Pricing Strategies for 2025:
Cost-Plus Pricing:
Cost-plus pricing focuses on the costs of manufacturing a product to determine its price.
Companies typically determine the amount they spent on manufacturing a product and then add a markup to the price to earn a certain profit. For example, a furniture manufacturing company that spent $100 to make a table and wants a profit of $100 will raise the price by 100% and charge customers $200.
If you want to use this pricing strategy, make sure to consider all the costs associated with manufacturing the product first, such as overhead costs, labor costs, and supply costs.
Competitive Pricing:
Competitive pricing or market pricing involves conducting market research to determine a fair price for a product (as well as competitor promotional offers). The company looks at the current price of similar products in the market to determine how much it should charge for its product. Using the information you find, here are three competitive pricing options a company can choose from:
– Pricing below market: The company may choose to sell its product(s) at a lower price than its competitors. This option can attract new customers, as it appears to be a more attractive deal.
– Matching the market: The company may decide to sell its product(s) at the same price as its competitors. This option can encourage customers to buy a product based on the brand they like rather than the price.
– Pricing above market: The last option is to price products higher than the current market price in order to increase profit margins. This can be an effective option for well-known brands, as customers may be more willing to buy their products, regardless of competitors’ prices.
3- Price Skimming Strategy:
This strategy relies on setting a high price for a new product when it is launched in the market, then gradually lowering the price over time.
This approach is used with products that have high anticipation and demand from consumers, such as electronics, digital games, and modern technologies, where customers are willing to pay a higher price initially to get the product as soon as it is released.
4- Penetration Pricing:
Penetration pricing is the opposite of the price skimming strategy because it involves companies introducing a new product to the market at a low price.
Companies may choose this pricing strategy if there is a lot of competition in their market. This pricing strategy allows companies to attract customers with their low prices to increase brand awareness. When customers see the value of their products, companies may raise their prices to become more competitive.
5- Promotional Pricing:
Companies may offer promotional deals or regular discounts to attract customers and increase sales. In this pricing strategy, companies might use limited-time offers, one-time discounts, or time-sensitive sales to persuade customers to make a purchase.
There are many examples of promotional pricing, such as offering a 15% discount for new customers, holding a seasonal sale where all winter clothes are 50% off, or creating a loyalty program where customers who buy ten cups of coffee get one for free.
6- Dynamic Pricing:
A dynamic pricing strategy is used by companies that adjust their prices according to current market prices and trends. Companies may change their prices several times throughout the day or week instead of choosing a fixed price for the season. This makes it a popular strategy for companies that sell their products online, where they can easily update their prices.
7- Value-Based Pricing (or Value-Added Pricing Strategy):
This is a strategy that takes into account the value provided to the customer to determine the price. This involves market research to determine what your target audience currently spends on similar products. Companies may use marketing techniques that highlight the value of their product to justify a higher price point.
However, what is the impact of pricing on the accounting aspects of the price?
The impact of pricing extends beyond being a marketing tool, reaching the core of the accounting and financial aspects of the corporation. It plays a pivotal role in determining vital accounting elements such as revenues, costs, profits, and even tax liabilities.
Here we review the most prominent of these effects:
1- Revenue Management:
Pricing is the main factor that determines the volume of expected sales revenue. Any change in price, whether by increase or decrease, is directly reflected in revenues.
For example, raising prices may lead to higher revenues if sales volume is not significantly affected, while raising prices may lead to lower revenues if the increase in prices causes a decline in demand for the company’s products.
2- Production and Distribution Costs:
Pricing indirectly affects cost management. When adopting a cost-based pricing strategy, profits here depend heavily on the corporation’s ability to control production costs. High pricing may allow for the coverage of fixed costs and achieve higher profit margins, while low pricing may require improved operational efficiency to maintain an appropriate profit margin.
3- Profitability Analysis:
Profit margin is defined as the difference between revenue and costs. Relying on an unstudied pricing strategy can lead to narrow profit margins that weaken the corporation’s ability to cover its operational expenses. Therefore, it’s advisable to conduct periodic profitability analyses using key performance indicators (KPIs) such as Return on Investment (ROI) and Gross Margin, to ensure financial balance and enhance business sustainability.
4- Taxes and Cash Flows:
Pricing directly impacts the organization’s cash flows. Increased sales mean an increase in available liquidity, which enhances the corporation’s ability to meet its tax obligations and pay off debts on time. Conversely, corporations that adopt low pricing policies may face difficulties in providing the necessary liquidity for their daily operations.
5- Break-even point analysis:
The break-even point represents the level at which revenues equal costs. Thoughtful pricing helps determine this point accurately. Low pricing may require a large sales volume to achieve break-even, while high pricing may contribute to achieving profits more quickly, although this may lead to a decrease in sales volume.
6- Financial forecasting:
Sound pricing contributes to enhancing the accuracy of the corporation’s financial forecasts. When pricing is based on a careful study of the market and an accurate analysis of costs, financial expectations become more reliable, which facilitates the financial planning process and the making of effective strategic decisions.
By understanding these aspects, corporations can develop balanced pricing strategies that enhance their financial performance and support their long-term sustainability.
Now that you’ve learned about the most prominent product pricing strategies, have you started looking for advanced accounting software that meets your needs and achieves your goals?
Logix Accounting System is the perfect solution for you!
Improving Your Pricing Strategy: How Does Logix ERP Help You Manage Prices Intelligently?
Logix Accounting System provides a comprehensive set of tools that give you complete control over the pricing of your products and services.
Through Logix Accounting System, you can apply your pricing strategy with complete flexibility through a range of advanced features:
1- Easily manage commercial discounts, whether as percentages or fixed amounts.
2- Automatically calculate and add taxes to products.
3- Set a minimum selling price, ensuring a suitable profit margin even when offering special deals.
4- Create dynamic price lists that allow you to:
4.1. Customize different prices for specific customer segments.
4.2. Automatically adjust prices during seasons and special occasions.
4.3. Manage special price offers with complete flexibility.
These integrated features make Logix a powerful tool for managing the pricing of your products and services with high efficiency, while maintaining your competitiveness in the market.
In conclusion,
Determining the price of your product or service is a vital process that requires continuous monitoring and periodic updates to ensure the best results. A successful pricing strategy is not limited to calculating costs and profit margins, but also includes a deep understanding of the market, customer expectations, as well as conducting accurate analytical studies on competitors.
To reach the ideal price, you must find a delicate balance between the true value that your product offers and the ability of your target customers to purchase. Therefore, use specialized accounting tools and software to analyze data and make informed pricing decisions based on scientific foundations, while maintaining flexibility that allows you to adapt to market changes and make appropriate adjustments when needed.
Get the most out of your pricing strategy!
Start now by analyzing your prices using Logix accounting software, and ensure your market leadership!
