Effective pricing of products is an art. Reaching that delicate balance between consumer demand and product value generally takes a great deal of research and insight. But those business owners who continually invest in this process will position their businesses to maximize the revenue potential from their customers and ultimately increase their bottom line.
When trying to price the products in your business, there are several things to consider:
- What are you selling? Your first consideration when determining your pricing strategy is to take a look at the products themselves. Are you offering a high-end or specialized item, or something more generic? If the price of a high-end or specialized product is set too low compared to competitive products, then customers will perceive that the quality is lower. On the other hand, a standard product that is significantly higher in price compared to those of competitors may drive away customers who feel the product is overpriced.
- Who is your target market? Who shops at your business, what products and services are they looking for, and what are their spending habits? Since pricing is directly linked to consumer demand, awareness of the current consumer trends is invaluable to running a successful small business.
- What is your competition doing? In order to properly price your products and services it is essential that you determine what your competitors are charging and what the customers get for their money in terms of value and service. This information should give you a general price range for the products and services you are offering.
- What is your business’ perceived value among customers? The value of your products is greater then raw materials and labor that was used to create them. Convenience, customer service, free or immediate shipping, location, brand name, and reputation all add to the value of your products and will effect how much a customer is willing to pay for them.
- How should your salespeople close a deal? To encourage consistency and quality performance from your salespeople, you should create price guidelines that contain a target price, price floor and price ceiling, and then only allow deals that fall within this range. You should also create an incentive program that rewards high profit margins over sales volume, since salespeople may try to sell products and services at the lowest possible price in order to close the deal.