Just like product and service quality, pricing can also affect your overall business health. When you undervalue your products, you reduce your profit margins, risking damage to your cash flow, brand image, and long-term growth potential. What’s more, if your products are priced too low, people may question their value or doubt their quality. Ultimately, it will pose a hurdle in establishing trust and building brand credibility.

Determining the right price for your products, however, isn’t as difficult as it may seem. It starts with understanding your costs, your market, and the value you provide to customers. With robust pricing strategies, you can confidently and fairly price your products, ensuring your business remains both profitable and competitive.

Pricing Strategies in Marketing

There are two of the most popular pricing strategies commonly used by SMEs. Here’s how each of them works:

1. Cost-based pricing

Cost-based pricing is a straightforward method to determine a product’s price. It involves calculating the total cost of producing and selling your product, including materials, labour, overheads, and other related expenses, and then adding a profit margin on top. 

For example, if it costs 20 SGD to produce a product and you want a 30% profit margin, you would set the selling price at around 26 SGD. While cost-based pricing provides a precise and reliable foundation, it doesn’t always account for external factors such as competitor pricing or perceived value. It works best when you have stable production costs and a predictable market, but it can limit your flexibility if the market changes or if competitors undercut your prices.

2. Value-based pricing

Value-based pricing, on the other hand, focuses on how much your customers believe your product is worth rather than simply what it costs to make. This approach is driven by perceived emotional, functional, or psychological benefits your customers associate with your product. For instance, a handmade leather bag may cost 40 SGD to produce, but could sell for 100 SGD if customers see it as a luxury or premium item. 

This pricing strategy requires more market insight and customer understanding, but it often results in stronger customer loyalty and higher profit margins.

Pricing Strategies for SMEs

For SMEs, setting the right price involves a balance between covering costs, staying competitive, and appealing to customers. Below are key considerations to help ensure your pricing strategies are both practical and sustainable:

1. Pick a goal to focus on

Ideally, your pricing strategy should be linked to a clear business objective. Are you aiming to maximise profit, gain market share, or attract new customers? For example, a new brand might temporarily lower prices to attract first-time buyers and build recognition. In contrast, an established brand might focus on maximising profits from a loyal customer base. Having a specific goal helps guide your pricing decisions and provides a precise measure of success.

2. Understand what makes your product unique

Next, identify the qualities that set your product apart, whether it’s superior quality, distinctive design, excellent customer service, or sustainable sourcing. Highlighting your unique selling points enables you to justify a higher price, as customers are more likely to pay extra for something that feels special or exclusive. If you position your product based on its strengths, you can avoid being drawn into a price war with competitors.

3. Calculate your total expenses

Many SMEs undervalue their products simply because they overlook all associated costs, which can lead to financial stress over time. That’s why it’s wise to calculate your total expenses, including direct and indirect costs. Direct costs might cover materials and manufacturing, while indirect costs can include rent, marketing, packaging, and staff wages. Understanding this information gives you a realistic picture of what it takes to bring your product to market and ensures your prices never fall below the break-even point. 

4. Know your competitors’ prices

Analysing what others charge gives you a sense of where your products stand in the market. However, avoid copying their prices mindlessly. Instead, use this information to position yourself strategically, whether slightly above, below, or at par with competitors, depending on your brand’s perceived value. If your product offers more features or better quality, don’t hesitate to price it higher. After all, customers often equate price with quality.

5. Learn your customers’ preferences

To complement the strategy above, be sure to learn your customers’ preferences, especially their willingness to pay based on their income and spending habits. Conduct surveys, run polls, or simply ask for feedback to understand their pricing expectations. 

For instance, if your target audience consists of young professionals, they may prioritise quality and convenience over price. However, if you serve price-sensitive consumers, affordability may play a more significant role in their purchasing decisions.

6. Determine your desired profit margin

Once you have the necessary data, it’s time to determine your desired profit margin. The ideal profit margin depends on your industry, costs, and business goals. However, it should strike a balance between competitiveness and sustainability. Equally important, continually reassess your margins regularly to account for inflation, changing costs, and market conditions. 

To calculate it, decide how much profit you want to earn from each sale after covering all costs. Assume your product costs 20 SGD to produce and you want a 50% profit margin; your selling price should be 30 SGD. 

7. Test your strategy and gather customer feedback

Pricing isn’t a one-time decision; it’s an ongoing process. Try different pricing levels and observe how your customers respond. Start by introducing your price point, then monitor sales performance and feedback. If customers consistently mention that your products are “great value,” you might have room to increase prices slightly. Conversely, if sales drop significantly, it could be a sign to re-evaluate. Testing also allows you to explore options like limited-time discounts, bundling offers, or premium upgrades.

Most SMEs fall into the trap of undervaluing their products because they lack sufficient capital. When funds are limited, it’s tempting to set prices low in an attempt to attract as many customers as possible. While this approach may generate quick sales, it can harm your business in the long run by eroding profitability and positioning your brand as a low-cost option. 

The good news is that with the proper financial support, you can price strategically rather than for survival. Funding Societies’ Start-Up Financing options offer practical solutions for SMEs that need breathing room to implement smarter pricing strategies. This funding provides working capital to cover initial costs, boost marketing, or invest in product development without feeling pressured to undercut your prices.

The financing comes with a five-month loan tenor, providing a manageable repayment period that supports steady cash flow. 

Fintech startup funding Singapore

The base Start-Up Financing option offers a quantum of $10,000, zero origination fees, and a fixed monthly repayment of $2,000, giving you predictable cash flow from start to finish.

If you need a larger boost, Start-Up Financing PRO provides you with $15,000 and a fixed monthly repayment of $3,000, with a one-time $500 origination fee.

Best of all, with timely repayments, both Start-Up Financing and Start-Up Financing PRO are interest free! Don’t let financial limitations force you to undervalue your hard work, and learn how Funding Societies’ Start-Up Financing can help you here!

Dorcas Pang
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