Cultural Enterprise Office

Pricing strategy

The pricing strategy of your brand is vital for commercial success. It all starts with identifying your customer and market position. To create a commercially successful product, designers need to know who their customer is and understand their needs in order to deliver a relevant product and unique benefits:

• Research who your customer is, look in depth at competitor brands in terms of retail costs, profile, where the product is made
• Market position - Are you going to be volume based and operate with lower margins or high end/luxury and operate with lower volumes, higher margins?
• Route to consumer - Is your product going to sell into specialist boutiques, high end department stores,  galleries or only sell online via ecommerce or your own websites? Knowing where your product will sell will help you put together your pricing model
• Retailers expect a higher margin as they have to cover the cost of rent, staff and marketing. Online retailers or selling directly can mean you can sell for less or realise more margin.
• Price your product too low and you won’t make profit. Price it too high without justification of quality or uniqueness and you risk pricing your brand out of the market.

Pricing models

There are generally two ways to approach pricing your product. Both methods have merit but it is generally accepted that the Value Based Approach is best for a sustainable business model. However, it is a useful exercise to approach costing and pricing with both methods.

1. Value based approach

Identify your target customer and research ‘competitor’ brands to determine what the right price point, at retail, your product should be. Then, work backwards, so that the product cost can be determined. This will allow you to identify what your target product cost is. If you can’t make it for that then it is likely your business will not be sustainable.

Example

RRP / Recommended Retail Price  = £90
Wholesale cost = divide RRP by 2.4 to 3.2* = £30
*retail mark-up is typically between 2.4 to 3.2

Target cost price = divide wholesale by 2 = £15 i.e. if your product cost £15 to make then you should price your product for retail at approximately £90

2. Cost based approach

Many new designer brands take the cost-based approach to pricing. Product costs are calculated by adding the cost of materials, trims and labour, adding in a proportion to cover overheads such as rent, marketing costs and salaries then applying the desired margin.

Example

Cost price = £10  (Total cost of materials, trim, labour and proportion of overhead) i.e. If your product costs £10 to make then you should retail for between £48 and £64
Wholesale cost = cost price x 2 = £20
RRP / Recommended Retail Price = wholesale cost x 2.4 to 3.2* = £48 to £64
*retail mark-up is typically between 2.4 to 3.2

Want to know more? Download the guide at the top of this page.