Pricing Products Bought at Auction: Measuring Market Influences

In order to price your product, you have to figure out who your market is and what price they are willing to pay for your crafts.

This article discusses how to determine your price point.

Pricing by Formula

Expanding on the concept of pricing by formula:

Pricing by formula is a common practice in many industries, where businesses establish a set pricing structure based on predetermined formulas or industry norms. This approach helps maintain consistency and predictability in pricing within a specific market. Here’s a further exploration of this concept:

Industry-Specific Pricing Formulas: Different industries may have established pricing formulas that businesses typically follow. These formulas are often based on factors such as production costs, market demand, competitive landscape, and desired profit margins. For example, in the fashion industry, it is common to sell products at a markup of 2-3 times the wholesale cost, while other industries may have narrower pricing ranges.
Flexibility in Pricing: While industry pricing formulas exist, businesses are not obligated to adhere to them strictly. They have the freedom to set their own pricing strategies based on their unique value propositions, target market, cost structures, and desired positioning in the market. Deviating from the established formula may allow a business to differentiate its offerings, target a niche market, or communicate additional value to customers.
Communicating Value: When pricing differently from the industry norm, it is crucial for businesses to effectively communicate the reasons behind their pricing strategy to potential buyers. Customers need to understand why a product is priced higher or lower compared to competitors. Clear and transparent communication about the unique features, superior quality, craftsmanship, sustainability, brand reputation, or other value-added aspects of the product can help justify a higher price point.
Creating a Unique Selling Proposition: Pricing differently from the formula can be an opportunity for businesses to position themselves as premium brands or to emphasize their distinct value proposition. By offering exceptional quality, unique designs, superior customer service, or other factors that differentiate them from competitors, businesses can justify charging higher prices and attract customers who appreciate the added value.
Market Perception and Acceptance: It’s important to consider the market’s perception and acceptance of pricing variations. If customers are accustomed to a specific pricing range in a particular industry, significantly deviating from that range may require additional effort to educate customers and build trust in the value being offered. Market research and customer feedback can help gauge the receptiveness to alternative pricing strategies.

In summary, pricing by formula is a common practice in many industries, but businesses have the flexibility to deviate from these formulas and establish their own pricing strategies. Effective communication of value, differentiation, and justifications for pricing variations is essential to gain customer acceptance and maintain a competitive position in the market.

By the way, if you follow a pricing formula approach, say two times wholesale cost, your job is to be sure that your costs of doing business and anticipated profit can be reached at that price point.

Pricing by Cost Plus

Following from the discussion in Pricing Part I, you have probably calculated a cost per product, recognising that the variables in that calculation are the profit margin you hope for and, most likely, the compensation you will draw from your business. Now that you have this incredibly valuable information, you need to look at market forces to determine at what price point you can actually sell the product.

Expanding on the concept of pricing by cost plus:

Pricing by cost plus is a common method used by businesses to determine the selling price of a product or service. This approach involves calculating the cost of producing or acquiring the product and then adding a desired profit margin to determine the final price. Here are some key points to consider when using the cost plus pricing method:

Determining the Cost: To start, you need to accurately calculate the cost associated with producing or acquiring the product. This includes direct costs such as raw materials, labor, manufacturing, and packaging costs, as well as indirect costs like overhead expenses and operating costs. Understanding the true cost of your product is crucial to ensuring that your pricing covers all expenses and allows for a reasonable profit margin.
Adding the Profit Margin: Once you have determined the cost, you can add a desired profit margin to establish the selling price. The profit margin is typically represented as a percentage or a fixed amount. It reflects the profit you aim to achieve from each sale and takes into account factors such as business sustainability, growth objectives, and the value your product offers to customers.
Market Analysis: While cost plus pricing provides a baseline for determining the selling price, it’s important to consider market forces and competitive factors. Conducting thorough market analysis helps you understand customer demand, competitor pricing, and industry trends. This information allows you to assess the pricing strategies employed by competitors and determine whether your cost plus pricing aligns with market expectations.
Customer Perception and Value: Pricing decisions should also consider how customers perceive the value of your product. Price points that are too high compared to perceived value may deter potential buyers, while excessively low prices may raise questions about quality or value. It’s essential to strike a balance between profitability and ensuring customers perceive the product’s worth.
Flexibility and Adjustments: Pricing is not a one-time decision. It should be reviewed and adjusted periodically based on market conditions, cost fluctuations, and changes in customer demand. Regularly assessing the pricing strategy allows you to remain competitive, maximize profitability, and adapt to evolving market dynamics.
Testing and Feedback: Conducting pricing experiments or seeking feedback from target customers can provide valuable insights into the perceived value and acceptance of your pricing strategy. A/B testing, focus groups, or surveys can help gauge customer willingness to pay and identify potential price points that optimize sales and profitability.

In conclusion, pricing by cost plus is a method that enables businesses to calculate the selling price of a product based on the cost of production and desired profit margin. However, it is crucial to consider market forces, competitive landscape, customer perception, and regularly review pricing strategies to ensure they align with market expectations and maximize profitability.

Competitive Analysis

It’s very useful to do a competitive analysis to get a better understanding of where your price point should be. Determine who your competitors are then analyse their offerings or their marketing and yours in detail. When you are selling commodity merchandise, the competitive analysis that you will conduct will be less focused on the product and more focused on the marketing approach used by the competitor. When you are selling something unique such as handcrafts or art or a unique offering within a commodity grouping, your analysis can focus on product differentiators as well.

Competitive analysis is a crucial process in understanding your market landscape and assessing your competitors’ strengths and weaknesses. By conducting a thorough competitive analysis, you can gain valuable insights that inform your business strategy and decision-making. Here are the key steps involved in conducting a competitive analysis:

Identify Competitors: Begin by identifying your direct and indirect competitors. Direct competitors offer similar products or services, target the same customer segment, and operate within the same market. Indirect competitors may offer alternative solutions or target a slightly different customer base.
Analyze Product/Service Offerings: Evaluate the products or services offered by each competitor. Assess their features, quality, pricing, packaging, and unique selling points. Understanding how your offerings compare to competitors’ can help you identify areas of differentiation and potential opportunities for improvement.
Assess Market Positioning: Determine how your competitors position themselves in the market. Analyze their brand identity, messaging, value proposition, and target audience. This analysis will help you understand how competitors differentiate themselves and how you can position your own brand effectively.
Evaluate Marketing Strategies: Examine the marketing strategies employed by your competitors. This includes analyzing their online presence, advertising campaigns, social media strategies, content marketing efforts, and any unique promotional activities. Identify the channels and tactics they use to reach their target audience and evaluate their effectiveness.
Study Customer Feedback: Gather customer feedback and reviews for your competitors’ products or services. This can be done through online reviews, surveys, or social media listening. Analyzing customer sentiments, complaints, and preferences can provide insights into areas where competitors excel or fall short, enabling you to identify opportunities to differentiate and improve your own offerings.
Analyze Pricing Strategies: Evaluate the pricing strategies of your competitors. Understand how they position their prices relative to the value they offer. Assess whether they focus on affordability, premium pricing, or a different pricing strategy altogether. This analysis will help you determine your own pricing strategy and identify opportunities to offer more value to customers.
Assess Strengths and Weaknesses: Identify the strengths and weaknesses of each competitor. This could include factors such as brand reputation, market share, distribution networks, customer loyalty, innovation capabilities, or operational efficiency. Understanding your competitors’ advantages and vulnerabilities can help you formulate effective strategies and capitalize on opportunities.
Identify Market Opportunities: Based on the insights gained from your competitive analysis, identify gaps or unmet needs in the market that your competitors may not be addressing. This can present opportunities for you to differentiate your offerings, enter new market segments, or develop unique value propositions.
Monitor Competitive Landscape: Competitive analysis is an ongoing process. Continuously monitor your competitors’ activities, product launches, marketing campaigns, and any changes in their strategies. This will allow you to adapt and respond effectively to market dynamics and stay ahead of the competition.

By conducting a thorough competitive analysis, you can gain a deeper understanding of your market, identify areas of competitive advantage, and make informed decisions to position your business for success.

Finding Competitors

Finding competitors involves conducting research and gathering information about businesses or individuals operating in the same industry or offering similar products or services. Here are some methods to help you identify your competitors:

Online Research: Start by conducting online research using search engines. Enter relevant keywords related to your industry, product, or service and analyze the top results. These websites or businesses are likely to be your direct or indirect competitors.
Industry Directories: Explore industry-specific directories or listings to find businesses operating in your niche. These directories often categorize businesses by industry or location, making it easier to identify competitors in your target market.
Social Media Platforms: Check social media platforms such as Facebook, Twitter, LinkedIn, and Instagram. Search for keywords or hashtags related to your industry and analyze the profiles and posts of businesses or influencers that appear. They may be your competitors or provide insights into the competitive landscape.
Trade Shows and Conferences: Attend relevant trade shows, conferences, or industry events. These gatherings bring together businesses and professionals in your industry, providing an opportunity to network and identify competitors.
Customer and Supplier Referrals: Ask your customers or suppliers if they are aware of any competitors in the market. They may have insights or recommendations based on their interactions with other businesses in the industry.
Online Marketplaces: If you operate in an e-commerce or online marketplace, explore similar platforms where products or services like yours are listed. Look for sellers or businesses offering comparable offerings to yours.
Local Business Directories: Check local business directories, both online and offline, to find businesses operating in your area. These directories can provide insights into local competitors that may not have a strong online presence.
Customer Reviews and Feedback: Review customer feedback and reviews for businesses offering similar products or services. Online review platforms, social media comments, or testimonials on competitors’ websites can provide valuable insights into their strengths, weaknesses, and customer perceptions.
Industry Associations and Publications: Research industry-specific associations, forums, or publications. These resources often provide information on businesses and individuals operating in the industry, including potential competitors.
Google Alerts: Set up Google Alerts for relevant keywords related to your industry or niche. This way, you’ll receive notifications whenever new businesses or competitors are mentioned online.

Remember that the competitive landscape may change over time, so it’s important to regularly update your competitor analysis and stay informed about new entrants or changes in the market.

Compare products

Are they selling exactly the same products that you are selling? If yes, is it because your products are quite available for resale or because you have discovered the same or similar small groups of suppliers?

Compare pricing as closely as possible. Are your prices in the same ball park? 10% lower 20% higher? Do you see clear reasons for differences in pricing? If you don’t then you can be assured that customers will buy at the lowest price. If you aren’t the lowest priced trader of a commodity type product, then you will have to 1) be a better marketer, reaching more people and/or 2) offer something additional beyond product, such as information, association, etc.

Compare product presentation

Look at descriptions, photos, supplementary information.

Compare website presence in the marketplace

To evaluate website presence in the marketplace, there are various tools and platforms available to gather valuable data. One such tool is Alexa, a popular website analysis platform. Although Alexa’s website analysis features may have evolved or changed since the time of this writing, there are other comparable tools and methods available to compare website presence and conduct market research. Here’s an updated approach:

To assess the online presence of a website and compare it with competitors, you can utilize different market research tools and techniques. These methods provide insights into website rankings, traffic trends, user engagement, and keyword performance. Here are some effective strategies to compare website presence in the marketplace:

Search Engine Rankings: Utilize search engines like Google, Bing, or Yahoo to examine the organic rankings of websites for relevant keywords in your industry. By comparing your website’s position with your competitors, you can gauge your visibility and competitiveness in search results.
Web Analytics Tools: Implement web analytics tools such as Google Analytics, Adobe Analytics, or similar platforms to track and analyze website traffic, visitor behavior, and conversion rates. These tools offer valuable insights into the number of visitors, page views, bounce rates, and engagement metrics, allowing you to compare the performance of your website against competitors.
Social Media Monitoring: Monitor social media platforms to assess the presence and engagement levels of your website and competitors. Evaluate factors such as follower count, engagement metrics (likes, comments, shares), and the overall sentiment towards your brand and competitors’ brands.
Competitive Analysis Tools: Explore competitive analysis tools like SimilarWeb, SEMrush, or Ahrefs to obtain detailed information about your competitors’ website traffic, sources of traffic, top-performing keywords, and audience demographics. These tools offer comprehensive data to compare the online presence and performance of different websites.
Customer Surveys and Feedback: Conduct customer surveys, interviews, or gather feedback through online platforms to understand customers’ perception of your website and your competitors’ websites. This qualitative information can provide insights into user experiences, preferences, and satisfaction levels, complementing the quantitative data gathered from other tools.
Industry Reports and Market Research: Stay updated with industry reports, market research studies, and relevant publications that provide insights into the overall landscape and trends within your industry. These reports often include data on website presence, market share, and consumer preferences, allowing you to benchmark your website against competitors.

Remember, while tools might provide valuable data, it’s important to explore multiple sources and approaches to gain a comprehensive understanding of website presence in the marketplace. Regular monitoring and analysis of website performance, coupled with continuous market research, can help you make informed decisions and stay competitive in the digital landscape.

Compare website content

Review each competitor website and evaluate:

Appearance – is the site interesting, attractive?
Ease of use – can you move around the site and find things easily?
Shopping experience – How does the shopping experience work? Is the checkout process quick and effortless?
Customer service – What are the customer service features? Live chat? 24 hour phone?
Additional content – Feature articles? How-to section? How-to product guides? Other relevant content?
Target marketing – Can you tell who the site is trying to sell to? How can you tell?

Compare selling strategies

What kind of selling strategies are they using? Special sales? Multiple product shipping discounts? Frequent buyer plans? After sale offers at checkout?

Once you have collected the data, review your chart looking for ways that:

you can differentiate yourself from competitors and convince your market to pay a higher price;
compete on price;
improve your own product positioning based on what you have learned from your competitors.

The outcomes of your analysis should give you a picture of the competitive landscape and how you and your products fit into it.

Pricing Decisions

Your pricing decisions should be made based upon your best understanding of your marketplace and what price the market will bear, your review of the competition and decisions about the extent to which you can compete on either price or other differentiators that will allow you to price above the competition. Read Pricing Part III – the Psychology of Pricing for good information about ways to increase revenue and profitability through pricing strategies.

Pricing decisions play a crucial role in the success of a business. Here are some key factors to consider when making pricing decisions:

Cost Analysis: Start by understanding the costs associated with producing or acquiring your product or service. Consider both variable costs (directly related to production or delivery) and fixed costs (overhead expenses). This information will help you determine a baseline price that covers your costs and allows for a reasonable profit margin.
Value Proposition: Assess the value your product or service offers to customers. Consider the unique features, benefits, quality, and customer experience you provide compared to your competitors. If your offering is perceived as more valuable, you may be able to set a higher price.
Market Research: Conduct market research to understand customer preferences, buying behavior, and price sensitivity. This can involve surveys, focus groups, or analyzing data from customer interactions. By understanding your target market’s willingness to pay, you can set a price that maximizes demand and profitability.
Competitive Analysis: Evaluate the pricing strategies of your competitors. Consider their pricing levels, positioning, discounts, and promotions. Pricing too high or too low compared to competitors can impact your market share and profitability. Determine whether you want to price at a premium, match competitors, or offer a lower price to attract price-sensitive customers.
Pricing Objectives: Define your pricing objectives based on your business goals. Common objectives include maximizing profitability, gaining market share, achieving target sales volume, or creating a perception of value. Your pricing strategy should align with these objectives.
Pricing Strategies: Choose a pricing strategy that suits your business and target market. Some common strategies include:
- Cost-Plus Pricing: Add a markup to your costs to determine the selling price.
- Value-Based Pricing: Set prices based on the perceived value to customers.
- Penetration Pricing: Set a low initial price to gain market share.
- Skimming Pricing: Set a high initial price to target early adopters or premium customers.
- Bundle Pricing: Offer products or services in bundles at a discounted price.
- Psychological Pricing: Use pricing techniques such as charm pricing ($9.99 instead of $10) or tiered pricing (basic, standard, premium) to influence customer perception.
Pricing Flexibility: Consider offering pricing flexibility to cater to different customer segments or situations. This can include volume discounts, seasonal promotions, loyalty programs, or customized pricing for specific customer needs.
Monitor and Adjust: Regularly monitor your pricing strategy and its impact on sales, profitability, and customer perception. Collect feedback from customers and track market dynamics. Be willing to make adjustments to your pricing strategy as needed to remain competitive and meet your business goals.

Remember, pricing decisions should be based on a thorough analysis of costs, market dynamics, and customer behavior. It’s an ongoing process that requires flexibility and responsiveness to changes in the business environment.