Pricing is one of the most critical decisions for any Indian business. It directly affects profitability, market positioning, and customer perception. Set your prices too low, and you may struggle to cover costs; set them too high, and you risk losing potential customers.
This guide provides practical steps to develop a pricing strategy that balances costs, competitiveness, and value for your target market.
Table of Contents
Why Pricing Strategy Matters
Profitability: Correct pricing ensures your business can sustain operations and grow.
Market Positioning: Prices influence how customers perceive your brand – premium, value, or budget.
Competitiveness: Pricing impacts your ability to compete with other Indian businesses in your segment.
Customer Behaviour: Price affects purchase decisions, repeat sales, and loyalty.
Actionable Insight: Treat pricing as a dynamic strategy, not a one-time decision. Monitor costs, competition, and demand regularly.
Understand Your Costs
Identify all costs associated with producing or sourcing your product:
Direct Costs: Raw materials, product purchase, packaging, shipping.
Indirect Costs: Rent, electricity, salaries, marketing, administration.
Variable Costs: Costs that change with production levels, like raw materials.
Fixed Costs: Costs that remain constant, like rent or salaries.
Tip: Maintain a cost sheet for each product to calculate the minimum price that covers expenses and generates profit.
Analyse Your Market
Identify competitor prices for similar products.
Understand your target segment’s price sensitivity.
Consider regional differences; prices acceptable in metropolitan cities may not work in smaller towns.
Example: A textile wholesaler in Surat may charge differently for B2B buyers in Gujarat vs Maharashtra due to logistics costs and market norms.
Choose a Pricing Approach
A. Cost-Plus Pricing
Add a fixed profit margin to your total cost.
Simple and ensures profitability.
Formula: Price = Cost + Desired Margin
B. Value-Based Pricing
Price based on perceived value to customers rather than just cost.
Works well for unique products or premium offerings.
C. Competitive Pricing
Align prices with market rates to remain competitive.
Suitable when customers compare multiple suppliers.
D. Penetration Pricing
Initially set a lower price to enter the market and attract customers.
Gradually increase prices after establishing market presence.
E. Premium Pricing
Set a high price to signal quality or exclusivity.
Works for branded, niche, or specialised products.
Factor in Taxes and Compliance
Include GST and other applicable taxes in your pricing calculation.
For B2B customers, display exclusive of GST prices, since they can claim Input Tax Credit.
For B2C customers, include inclusive of GST pricing for clarity.
Tip: Always maintain transparency in pricing to avoid disputes and enhance credibility.
Decide on Discounts and Offers
Decide on volume discounts, early payment discounts, or seasonal promotions.
Ensure discounts do not erode your margins below sustainable levels.
Communicate terms clearly to avoid confusion.
Example: Offer 5% discount for orders above 100 units but keep cost calculations in mind.
Test and Adjust Pricing
Start with a pilot price in a small market or limited audience.
Collect feedback on acceptance, sales velocity, and profitability.
Adjust pricing based on demand, competitor moves, and operational costs.
Tip: Document all changes and rationales to track pricing effectiveness over time.
Pricing Tools
Maintain a pricing tracker in Excel or accounting software.
Track cost fluctuations, competitor prices, and sales margins.
Tools like Tally, Zoho Books, or QuickBooks can automate cost and margin calculations.
Insights
Insight 1
Create a dynamic pricing sheet for all products, including cost, GST, competitor price, margin, and final price. Review monthly to respond to market changes.
Insight 2
Pilot your pricing with a small batch or select customers, gather feedback, and adjust before a full-scale launch. This minimises financial risk and optimises market acceptance.
Avoid Common Pricing Mistakes
Ignoring indirect and hidden costs.
Copying competitor prices without analysis.
Offering excessive discounts that harm profitability.
Neglecting customer perception and willingness to pay.
Not revising prices with changing costs or market conditions.
Official References
With pricing established, the next step is to build a strong brand and position your business effectively in the Indian market.