One of the most challenging areas in setting up a fashion business is determining the right marketable prices for your goods. Fair and effective prices are ones that can be justified based on the quality of goods being sold, your location and your competition. Due to the fact that the fashion industry is particularly competitive, the faster you can strike a balance between a healthy profit margin and sales volume, the sooner your business can grow. As an emerging designer, you are faced with the challenge of how to price your goods versus other global designers and retailers. You can neither afford to be too expensive, especially if you are starting out, nor be too cheap because that could also prove to be financially disastrous for your business. As a result, you have to study your market and get acquainted in ways to effectively price your products. Here are some guidelines to look at as you think about your product prices.
An effective pricing strategy in the fashion industry is essential in improving sales, uplifting your brand and making you a competitive powerhouse. There are a variety of methods that you can use to start setting up prices for your product and they depend on several things, including your brand type, your business goals and your target market. These are a few areas to consider:
- Keystone markup
This is a pricing method that multiplies the cost basis by a factor of two, sometimes even five in case of jewelry, in order to get a price for the next stage in the value chain. Basically, it is when the mark-up equals the cost of the item you are trying to sell, which essentially means that you will be selling the product for twice what you paid for it.
Firstly, you calculate the cost of the goods you are selling. So for you as a designer, since you are mostly likely making your own apparel, you include the cost of the fabric and production cost. Then after, you figure out the cost, which can be Ksh. 500 ($4.09), you multiply the cost by 1, to calculate the markup cost, then add the keystone markup to the original cost to find the selling price. So, in the end, your selling price would be Ksh. 1000 ($9.8).
This is the most basic method and is especially beneficial for brands that are just starting up. It is also important to realize that depending on your business goals, you may need to adjust the keystone mark-up to keep your prices competitive and reasonable.
Other different types of pricing strategies are;
- Value based pricing
This is when you set a product price based on the benefits it offers to consumers. So, this type of pricing works for brands that offer unique or highly valuable services or features. So for example, BUYU, and their unique hand crafted bags are better positioned to use this type of pricing. Value pricing requires a lot of research because unlike keystone mark up, this method focuses on qualities that distinguish your product from others. To find out more about value pricing click here.
- Target return pricing
This is the pricing method whereby the selling of a product is based on the rate of return on investment. So you set your price to a target return-on-investment (ROI). This method is used for businesses whose capital investment is high. The target return price can be calculated as: target return price = unit cost + (desired return * invested capital) / unit sales.
- Going rate pricing
This is a strategy in which the designer examines the prices of their competitors and set their prices on par with these. For example if the general price of handbags in Kenya is Ksh. 600, and if you are designing bags, then you set the price at about the same, plus or minus Ksh. 100.
Target market pricing
First and foremost, your prices should reflect your customers. One look at your prices can determine who your intended market is. Still, the basic rule in pricing is to [bctt tweet=”set up prices that your consumers are willing to pay”]. Depending on your location and your market value, the same rule applies; your prices should be the level in which your costumers expect to pay. For instance, if your consumers are mostly made up of students in Kenya, it is illogical to sell a dress for Ksh. 40,000 ($392), who will buy it? Not your customers, that’s for sure. On the other hand, if you are selling to high-income women, that dress will have a market.
In addition, don’t deviate too much from standard price around the country you are in. The only time this is justifiable is if your brand has a reputation for high quality expensive products, then that is your identity. However, as a startup, even as a luxury brand, start off slowly, then as your brand gains recognition and you widen your market then you can start increasing your prices.
Market and brand consideration
As you think about pricing your product, your most important point of research is the market, and by market here we mean competition. What kind of strategies do they use and how is it working for them? In addition, you have to think about where your brand is positioned in the market. So, the type of brand you have will determine how you will set your prices. For example, if you are a premium brand, your customers will expect to pay a high price for great value.
Quality is another important factor when it comes to justifying your prices. The quality of your fabrics, delivery or packaging can justify a high or low price; especially if you are comparing your products to the products your competitors produce. Not only that, if you use higher-quality materials, it also means that you will have to set your prices a bit higher to make a profit. However, if you want to sell at lower prices, don’t go too low because it might be misinterpreted as cheap and lead to lower sales.
Location and Discounts
Location also plays a role in pricing up your products. Location refers to your selling platform and not just the country you are designing and distributing your products to. If you are designing your products and selling them in a mall, then you should be expecting more competition and also more traffic. In addition, because of how expensive renting a mall space can be, you could justify it if your prices are slightly high. On the contrary, if you are selling your products online, where competition is not as fierce and there are no rent payments then you cannot have insanely high prices unless you are a luxury brand. This is concept is referred as geographical pricing.
Another strategy you can use to increase sales volume is discounts, your business can make losses this way, but it can build up brand loyalty. This strategy can also be useful if your business is experiencing slow sales or when your products have been on sale for too long.
How you set your prices is pivotal in how well your success will do on the market. It is vital that you can justify your prices to your customers as well as yourself. It is irresponsible to set unrealistic figures without conducting research.
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