Pricing Strategies: How to Price your Products for Profit as a Small Business in Nigeria

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When it comes to selling products as a business owner, the first thing you’ll hear is that you have to make products that are in high demand and of great quality to ensure that you sell and make money easily. All this is true, but something that often slips through the cracks is how to price your products for profit, especially as a small business in Nigeria.

Thanks to the country's economic state, Nigerians' purchasing power has drastically dropped, and you don’t need a financial guru or some statistics before you understand that people do not have as much money to spend anymore. And while consumers will still buy the things they feel they need, price more than anything else now plays a huge role in their decision to buy or not.

But as a business, you still need to make money. Whether you’re just starting the business or have been in it for a while, it is important to be very strategic about how you price your products so that you not only satisfy your customers but are also making a profit on each product.

In this article, we’ll break down pricing strategies, and how to price your products as a small business in Nigeria for profit. Let’s delve in!

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What is a Pricing Strategy?

Having a solid plan to back up your reasons for pricing your products you have helps you define your pricing better and makes it easier to go back to the drawing board and reorganise your plans if your current model doesn’t work. That is where pricing strategies come in.

A pricing strategy is a plan or approach that businesses use to set prices for their products or services. It involves considering various factors such as production costs, competition, market demand, and consumer behavior to determine the best price that maximises profit and aligns with your business’s plans. They can vary widely, from cost-based pricing to value-based pricing, aiming to find the right balance between profitability and customer value.

There are different types of pricing strategies but we’ll cover the ones we think are most effective for small businesses in Nigeria, considering the market and the economy.

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How to Determine the Right Price for Your Products

Pricing your products requires the perfect act of balancing; you can’t go too high so that you don’t scare your customers away, and you can’t go too low so that you don’t run your business into the ground.

There are factors to consider when setting prices for your products, and they include:

1. Understand your target market: You should consider the income levels of the people you’re targeting and their buying behavior to set attractive and affordable prices. Know how much they’re willing to spend, and a great way to find out is by checking out how much your competition is pricing their products too.

2. Factor in your costs: Most business owners often forget that the cost of an item isn’t just the price you got the item for, but everything else including things like transportation, storage and other payments made to get those goods to you. Keep track of these costs and factor them in, including the inflation rate in Nigeria.

3. Check out your competition: One of the most important things is to know how your competitors are also pricing their products, because going way higher than them can drive your customers back to these competitors, and going way lower can indicate that your items are not of great quality.

4. Test your prices: You can experiment with different price points and small audiences while you continue to do your market research to determine the ideal price that will balance your profit and customer demand.

5. Consider perceived value: What this means is that you should consider your product's quality, uniqueness and benefits to justify the price points, especially to Nigerian consumers who seek value for their money.

After you’ve ticked these boxes, it’s time to choose a pricing strategy that’ll work best for you and your business.

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Types of Pricing Strategies for Small Businesses in Nigeria

There are different types of pricing strategies but if you’re a small business in Nigeria, these are some of the strategies you should consider.

1. Cost-plus Pricing:

This is a pricing strategy where a business calculates the total cost of producing a product or service and then adds a markup (profit margin) on top of that cost to determine the selling price. The markup is typically a percentage or a fixed amount that ensures the selling price covers all costs incurred in production and includes a desired profit margin.

Imagine you sell dresses. Think about how much it cost you to buy the dresses, and then you say "I want to make some money too," so you add a little extra to cover your costs and make a profit. So, for each dress you sell, you make sure you get back all the money you spent, plus a bit more for yourself.

2. Absorption Pricing:

Absorption pricing is a method where all costs, both variable and fixed, incurred in the production of a product are allocated to each unit of production. This method considers direct costs (like materials and labour) as well as indirect costs (like overhead expenses). By spreading all costs across the total units produced, businesses can determine a per-unit cost that includes a share of all expenses. The selling price is then set by adding a markup to this absorbed cost.

Now, let's pretend you have a toy-making workshop. Absorption pricing is like this - you look at all the toys you've made and think about how much it costs to make each toy. This cost includes everything - the paint, the toys, the workshop rent, and even the electricity you use. You then decide on a fair price for each toy by dividing all these costs by the number of toys you made. This way, every toy has its share of all the costs added to its price.

3. Competitive Pricing:

Here, businesses set their prices based on the prices charged by their competitors for similar products or services. The goal is to offer attractive prices that appeal to customers while remaining profitable and also positioning the business effectively against rivals. This strategy involves researching market prices, making pricing decisions based on this data, and continually adapting to stay competitive in the market.

4. Bundle Pricing:

Bundle pricing is like getting a special deal when you buy products together as a package. Instead of buying each item separately at full price, businesses offer these products as a bundle for a lower overall price. This strategy encourages customers to purchase more items in one go and can create a win-win situation for both the customer and the business.

Let's say you have a bakery. You normally sell cookies for ₦100 each and cupcakes for ₦150 each. Now, you decide to introduce a "Sweet Treat Bundle" where customers can buy two cookies and one cupcake together.

• Individual Prices:

  • Cookie: ₦100 each

  • Cupcake: ₦150 each

• Bundle Price:

  You decide to offer the "Sweet Treat Bundle" for ₦250 instead of ₦350 if they were bought separately.

When a customer buys the bundle, they pay less than if they were to buy the items individually. This not only encourages customers to try different products but also increases the overall sales value of your bakery. Through bundle pricing, you create added value for customers, boost sales, and potentially reduce excess inventory of certain products.

5. Dynamic Pricing:

This is a strategy where businesses adjust prices in real time based on various factors such as demand, competition, seasonal trends, and even customer behavior. This flexible pricing approach allows companies to optimise their pricing strategy to maximise profits while remaining competitive in the market.

Conclusion

In today’s Nigeria, getting the right price for your products is not the easiest thing, especially as product prices keep increasing almost daily. In trying to make sure your customers aren’t scared away by your prices, you also need to ensure that your business isn’t running at a loss. This is why it’s important to do all your research, factor in your costs and make sure you’re getting the best deals even from your suppliers. Lastly, find the pricing strategy that suits your business goals, and even after implementing it, be sure to always review and readjust if you need to!

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