I had never thought about how goods are priced, or the intricacies involved in setting a price for products and services so a business can break even or is paid its worth for the services it renders. The pricing in our economy, especially for tradesmen services like plumbers, electricians etc.  is very poor and sometimes the contribute to their poor remuneration by asking the clients to pay what they think is good for the service rendered. They do not understand the principles of pricing to better value themselves and unfortunately cannot afford LBS to teach them like I was taught.

1. What are the key factors that should be considered in fair pricing?

The key factors that should be considered in fair pricing are as follows:

Cost: One of the major factors is the cost of production of a good or services to market and consumers. The aim of most businesses is to be profitable, and costing of a product or service should be higher than all the associated costs in bringing goods or services to market.

Customers: The target customer for your products or services also determines pricing. Are your customers high income earners or low-income earners? Do they perceive value in the product compared to the cost?  All these must be taken into consideration in pricing.

Competition: The cost of similar products or services from competitors especially for a new product entering the market is also a major factor in fair pricing as one tries to build and increase its market share.

Value: The value ascribed to a good or service may not necessarily reflect the cost of production, cost of production could be high, with an added margin for profit while in others, cost of production might be low but with a high margin of profit. The market price provides a much better indication of the value of a good in any society.

2. How can unfair pricing situations arise?

Unfair pricing situations can arise by any of the following means:

a) Special need or ignorance leading to a buyer to accept a price above market price.

b) Monopoly or collusion allows sellers to force upwards the market price.

c) In the absence of a market a price will be unfair if the buyer has been led to agree by substantial information differences or by a situation of special need.

In your opinion, should pricing be based on the costs only?

Pricing should not be based on costs only. Demand and supply for goods and services play a role in pricing. If a product is scarce but crucial, prices will go up. During the corona virus pandemic, prices of sanitizers, hand gloves and facemasks went up due to demand though the cost of production didn’t change drastically. Production was increased to meet demand and the prices crashed.

Product positioning also plays a role in pricing. If a product is produced with a certain demographic of people, either mid-luxury or luxurious products, pricing may not be based on costs alone.

Market value of products are usually determined by consumers. If a product or service is regarded to have high value to consumers either in its usage or availability, the price may be determined by that.

Pricing is dynamic concept and costs alone should not be a determinant in it.