Developing a Pricing Strategy
Determining the right price for products or services can be one of the most difficult tasks for small business owners. Pricing too high or too low can crush a business. To set prices that your customers will actually pay, follow these tips.
Establish a Minimum Price Point
When setting prices, you must take into account how much it costs to run your business, e.g. rent, materials, labour, salaries and marketing costs. Dividing that total by the number of units you plan to sell will give you the true cost of your product.
Determine Payment Structure
Tangible products tend to fall under one-off pricing – customers purchase the product once and don’t purchase again until the need arises. Services are often subscription-based, where customers pay a monthly fee to use the service. You may also want to establish bulk pricing, where you offer discounts for large orders.
Assess the Value of Your Product
If customers see value in your product, they’ll be willing to pay for it. Customers will also pay a premium for products that solve a problem or drastically increase the quality of their lives.
Understand Your Target Customers
Who is likely to purchase your products or services? Are you dealing in luxury goods that only appeal to high-income customers or do your products and services have more mass appeal?
Compare Competitors’ Pricing
Analyse your competitors’ offerings and decide how your products or services compare. It isn’t always necessary to price lower than the competition. If your products are of much higher quality or you provide a better customer experience, you can charge more.
Survey Your Customers
Surveys offer one of the quickest and most direct ways to find out what your customers are willing to pay for an offering; which company they feel offers the best product/service; and what would encourage them to try a different supplier.
Don’t Go Too Cheap
Selling products or services at rock-bottom prices can lead customers to question the quality of your offerings. If you’re faced with pricing that you can’t match, find other ways to compete. Many consumers are willing to pay a premium for superior customer service; or you could develop a superior product to blow the existing product out of the water.
Are you pricing your products correctly?
Adapted from an article by Jaimy Ford, docstoc.com