When pricing your product or service, you should put some thought into the strategy you utilize. Are you going to undercut your competitors? Would you rather target the upper level? Maybe you just want to price with the market. It really depends on what you are offering, but here are some different strategies

Penetration Pricing

This is when you want to quickly get some grip in your market by offering a lower (and sometime insanely lower) prie. Benefits would obviously be the quick market penetration.

Skimming Strategy

This is somewhat opposite of penetration pricing. Do you have a relatively new technology that nobody else is offering? Why not “skim” off the customers who are willing to pay more in the beginning.

Follow The Leader

Sometimes it makes since to just follow the crowd and price your product competitively. Obvious products here would include commodities.

Variable Pricing

Do you sell cars or real estate? Do you own an eBay business? If so, you are already using this strategy. Variable pricing involves negotiation and bargaining between your sales staff and the customer

Flexible Pricing

This works well for service based companies. Do you have government clientel? Then add a couple zeros to the price tag. Have a scaled down solution for commercial use? Drop the price and gaing some market traction.

Price Lining

If you’ve ever been to the Dollar General you are familiar with this strategy. All the products are offered at the same price. Obviously, this method is easy to manage, but you might get stuck due to its lack of flexibility. Times might get tough in times of inflation or an unstable market.

reference: http://www.startupstudents.com/a-pricing-strategy-for-everyone/

Hopefully this will help you grasp the basic ideas and maybe even assist you in finding the right strategy for your business.

My opinion: I think Penetration strategy is more risky, because we don’t want to undercut ourselves out of business. Skimming strategy is good to do for new technology product but once demand from the early adopter’s falls, we left with no option then lowering our prices. Variable Pricing is good for products having only one time fix cost and having minimum variable costs for example telecom sector such as zong, telenor etc.

Nine Factors to Consider When Determining Your Price

1. Your Costs
If your rate doesn’t include enough just to break-even, you’re heading for trouble. The best thing to do is sum up all your costs and divide by the number of hours you think you can bill a year. Whatever you do, DON’T think you can bill every hour. You must account for sick days, holidays, hours working on the business, hours with no work and so on.

Also make sure you factor in all the hidden costs of your business like insurance, invoices that never get paid for one reason or another, and everyone’s favourite – taxes.

2. Your Profit
Somewhat related to your costs, you should always consider how much money you are trying to make above breaking even. This is business after all.

3. Market Demand
If what you do is in high demand, then you should be aiming to make your services more expensive. Conversely if there’s hardly any work around, you’ll need to cheapen up if you hope to compete.

Signs that demand is high include too much work coming in, other freelancers being overloaded and people telling you they’ve been struggling to find someone to do the job. Signs that demand is low include finding yourself competing to win jobs, a shortage of work and fellow freelancers reentering the workforce.

4. Industry Standards
It’s hard to know what others are charging, but try asking around. Find out what larger businesses charge as well as other freelancers. The more you know about what others are charging and what services they provide for the money, the better you’ll know how you fit in to the market.

5. Skill level
Not every freelancer delivers the same goods and one would expect to pay accordingly. When I was a freelancing newbie I charged a rate of $25 an hour for my design, when I stopped freelancing recently my rate was $125 an hour. Same person, but at different times I had a different skill level and hence was producing a different result. Whatever your rate, expect it to be commensurate with your skill.

6. Experience
Although often bundled with skill, experience is a different factor altogether. You may have two very talented photographers, but one with more experience might have better client skills, be able to foresee problems (and thus save the client time and money), intuitively know what’s going to work for a certain audience and so on. Experience should affect how much you charge.

7. Your Business Strategy
Your strategy or your angle will make a huge difference to how you price yourself. Think about the difference between Revlon and Chanel, the two could make the same perfume but you would never expect to pay the same for both. Figure out how you are pitching yourself and use that to help determine if you are cheap’n'cheerful, high end or somewhere in between.

8. Your Service
What you provide for your clients will also make a big difference to your price tag. For example you might be a freelancer, who will do whatever it takes to get a job just right, or perhaps you are on call 24-7, or perhaps you provide the minimum amount of communication to cut costs. Whatever the case, adjusting your pricing to the type and level of service you provide is a must.

9. Who is Your Client
Your price will often vary for different clients. This happens for a few reasons. Some clients require more effort, some are riskier, some are repeat clients, some have jobs you are dying to do, some you wouldn’t want to go near with a stick. You should vary your price to account for these sorts of factors.

Reference: http://freelanceswitch.com/money/nine-factors-to-consider-when-determining-your-price/

My opinion: factors which can be considered for setting price for a product may be broadly categories into two main factors:

Internal Factors - When setting price, we must take into consideration several factors which are mostly controllable by the company. For instance, product pricing may depend heavily on how much can be produced within a certain period of time. Increasing productivity can reduce the cost of producing each product and thus allow us to potentially lower the product’s price

External Factors - There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. Understanding these factors requires, conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market.