Most Indian entrepreneurs unknowingly lose out on money at the stage of pricing their offerings. You take the time to build a product, incur expenses in your services, and then, quite automatically, set a price for your offering that is way too low. “The market will not pay more.” “There is stiff competition.” “Log compare karenge.” Your concerns may be genuine enough. But that is precisely the reason why there are so many small businesses in India staying as small entities.
The bottom line is that poor pricing strategy in India is not merely an issue concerning money lost. Poor pricing strategy is an issue of positioning, an issue of growth, even a matter of survival itself.
Why Pricing Is Harder (and More Important) in India
India is not one market. There are several markets stacked over each other – tier-1 consumers from metros who will happily pay the highest price for the product, tier-2 consumers from cities who will question every rupee, consumers from rural markets who will purchase in a completely different way, and a rising middle class that demands quality at bargain prices.
Such diversity makes pricing strategy in India a complicated matter altogether. Pricing that may work in Bengaluru may not work in Bhopal; subscription plans that work in Mumbai may be lost in Meerut. And there isn’t any one solution to fit all. This explains why founders either end up underselling out of fear or overselling without understanding who the customer really is.
Before anything else, it is imperative to figure out the game plan.
Step 1: Know Your True Costs- All of The
It seems like an obvious thing to say, but it is not always done often enough.
As soon as you learn to price products in India, you should ensure you don’t make the common mistake of setting prices based on only partial costs. Most entrepreneurs and sellers consider the cost of materials and delivery costs while pricing their products. However, few people take into consideration GST liabilities, platform commission (15%-30% by Meesho, Amazon, Flipkart, etc.), return costs, marketing expenditures, and even the cost of their personal time.
A graphic designer charging ₹500 per logo and spending four hours on it earns a mere ₹125 per hour which is less than many entry-level jobs in the office market. A home baker selling a cake for ₹800 but incurring expenses worth ₹600 is left with nothing to invest in growth.
Your lowest possible cost price is not just your material cost. It is your material cost plus overhead cost and your minimum time cost. Any amount you charge over your cost price is your profit margin.
Step 2: Understand Value-Based Pricing – The Real Key to Profit
Cost-plus pricing (add a margin on your cost) ensures your survival. Value-based pricing is what makes you wealthy.
Value-based pricing is essentially selling your offering for whatever its value is to your customer. The accountant charging ₹5,000 per tax filing that saves his client ₹50,000 in fines is giving his client ₹50,000 worth of value. Even at ₹5,000, his price is hugely undervalued compared to that.
Think about this. What problem is your offering solving? How costly is that problem? In case you run a coaching service that can help students clear an entrance test to bag a seat in an engineering college costing ₹15 lakh, that’s a huge value you’re generating and your prices should at least reflect a bit of that.
The basic premise in all this is that your pricing strategy has to be based on value and not the cost of your product/service.
Step 3: Study Your Market Without Copying It
Find out what competitors charge. After that, take a conscious choice regarding where you want to position yourself vis-à-vis that spectrum.
There are three possible positioning choices for prices- below the market, at the market, or above the market price. All of them are valid, but just choosing the market price without any thought process does not qualify as a business strategy. It is just a stroke of luck.
If you decide on a price below the market price, then volume and efficiency are critical. Margin-based businesses require you to have a huge customer base with relatively low increase in cost structure. Most Indian small businesses will struggle in this regard.
In case you want to charge your products at premium levels, then you need to first deserve that privilege. This entails being superior in product quality, branding, customer service, delivery, customization, or a true specialization. Indian customers have proven this to be the case before. For instance, customers in India have been shown to pay more for Amul Butter compared to other brands. Also, they have been seen to be willing to pay more for Apollo Hospitals compared to the local clinics. They have also been seen to pay more for boAt headphones compared to no-name Chinese brands.
Step 4: Use Psychological Pricing Thoughtfully
Like any consumer in the world, Indian consumers don’t always behave rationally while being presented with numbers. ₹999 comes off as much more affordable than ₹1,000, not because Indians can’t subtract, but because their brain picks out the first number and reacts to it first. Similarly, the amount of ₹4,999 feels closer to ₹4,000 than ₹5,000 psychologically.
Another strategy that often works well on Indian consumers is presenting three tiers of prices- one basic and two better than the previous one. This pricing method is known as the decoy effect. It works perfectly fine because the presence of an expensive tier automatically makes the second price seem more reasonable.
The introduction of EMI has completely altered the mental psyche of expensive purchases. An expensive product worth ₹30,000 may seem daunting. The same product purchased for ₹2,500 each month for one year becomes easy to purchase despite the total payment being higher. Consumers in India are now trained to think of payments on a monthly basis through initiatives from Bajaj Finance, Zest Money, and Buy Now Pay Later platforms.
Step 5: Test, Track, and Adjust
Your first price is a guess. Take it as such.
Test the effect of price on your business. Test two price points for your product on two different audience groups. See what happens not only in terms of conversion, but in customer quality, happiness, and lifetime value. You’ll often notice that customers attracted by lower prices will turn out to be demanding, hard to please, and unfaithful customers. Customers lured by higher prices will be those who know what they want, are easy to please, and refer others.
Keep track of your stats. How many people convert? What is your average order value? How frequent is the repeat purchase? These metrics will provide you with more information than all the textbooks about pricing.
And do not be afraid to increase your price. The majority of Indian entrepreneurs who raised their prices have noticed that the drop in quantity was less drastic than expected while profits grew beyond their expectations.
One Last Thing: Stop Apologising for Your Price
Presentation of your price point is very important. “It is only ₹3,000,” says you yourself don’t believe that it is worth ₹3,000, otherwise you would have never used the term “only”. Justifying your price point through elaborate reasoning without anyone bringing an objection is showing your own insecurity which the other person will sense.
Just mention your price point, but then keep silent. Your product value should speak for itself by now.
Good pricing in India does not mean giving out your services or products at the lowest price points. Pricing means being clear about what you offer and being confident about the price you charge. It means knowing who you are offering it to. Once you achieve that balance, the maximization of profit will not be a separate aim to attain; it will come automatically.