Price Your Product: A Game of Demand & Supply

The law of demand and supply is an economic theory that describes how demand and supply interact and affect the price of products and services. According to the law, the higher the prices, the fewer the number of products required, and the bigger the supply of goods, the higher the price of goods.

When consumers adore a product, the supply is plentiful since there is a great demand for the product. As a result, the price rises. However, when demand for a product is low, manufacturers are obliged to cut the price to sell it.

Continue reading to find out how demand and supply impact the price of items, the definition of pricing, and how it connects to demand and supply.

What Does Pricing Mean?

Pricing is the practice of assigning a monetary value to a certain commodity or service. The pricing procedure is designed to benefit both the consumer and the producer. Pricing is determined by the customer's perceived value of an item, the cost of production, the price of a rival, and external influences such as government legislation, etc. Every business, whether online or offline, exists solely to increase profit.

The pricing method is how a company or business determines the cost of production and a reasonable price to favor their customers while maximizing profit. There are two primary pricing techniques, which are as follows:

• Cost-Oriented Pricing Method

It is used to determine the price of finished goods. You can apply this pricing method to know the cost of the product. It involves you adding a certain percentage of the proposed profit to the cost of production. It can be further divided into:

1. Target-Returning Pricing: You assign a price to ensure you get your return on investment. Target-retuning pricing is mostly used because it is easy to calculate.
2. Cost-Plus Pricing: The selling price is determined by calculating the cost of production. It is the most fundamental strategy; it is based on the core goal of business, which is to maximize profit.

• Market-Oriented Pricing Method

This pricing method fixes prices based on market research. It can also be called the "competition-oriented pricing method." It can be further divided into:

1. Differential Pricing: Prices are set for various individuals and customers. It is influenced by geography and other things.
2. Value Pricing: You produce a low-cost yet high-quality product. You charge a low price for higher-quality goods.
3. Perceived-Value Pricing: You fix the price based on the customer's view of the product. It depends on the mental image that the consumer creates.

The Roles of Demand and Supply in Pricing

When demand is constant, supply is inversely proportional to price. If a good's supply is raised while demand remains constant, prices fall to a lower equilibrium price and a greater equilibrium quantity. If a good's supply is lowered while demand remains constant, the price will increase to a high equilibrium and the number of items will be reduced.

Demand for products and services is also inversely related to the price of such goods and services. When demand is strong and supply is fixed, the equilibrium price is high. When demand is low and supply is constant, the equilibrium price is lower.

Demand and supply will continue to fall and rise unless equilibrium is reached. For example, if a company sets the price of a luxurious bag at $100,000, the demand may be high at first due to its newness, advert, and all. However, most people won't want to spend that much on a bag. This may lead to a drop in sales. If supply were to rise and there was low demand, the company would be forced to lower the price.

The way you price your goods is determined by supply and demand. Price, demand, and supply are all interconnected; they all function together. Examine the demand and supply curves before deciding on a price for your goods.

Conclusion

Demand and supply are critical in every business. They are crucial in deciding the pricing of your items. Because the goal of your business is to maximize profit, the price you set for your product is critical. Pricing your goods is a game of supply and demand.

E-commerce is now made easier by Shopify, Shoplazza, etc. At a cheap cost, everyone may establish their own business. However, these website builders will not educate you how to price your products. You must understand what is in demand and what you can supply.

(Contributed by Ayotomiwa Omotosho & Hermes Fang)