SETTING YOUR PRICES
is one of the elements of a marketing mix.
The right price should meet the requirement of the buyer or seller.
If you hit the optimum price , your customers will be happy, your profits
will be higher, and your bottom line will be healthy.
setting the right price is one of the most difficult decisions to make when
starting a business. Many small business owners make the mistake of setting up a
flawed pricing structure. As a
result, they find themselves out of business very soon, or they are working so
hard for so little.
prices must be based on a broad, thoughtful basis.
It requires a basic understanding of both your financial and business
goals. Here are a few principles to
consider to apply when your decide what prices to put on your merchandise or
YOUR PRICES REALISTIC
realistic price is the price you set after taking into consideration various
factors, such as the direction of your business, your cost structure and
expenses, your resources and financial goals.
Avoid setting you prices based on “what everybody else is charging”.
What is right for your competitors may not be profitable for your
business. After all, their
goals, strategies and financials may be different from yours.
Research your competition and see what they are charging, but do not copy
their pricing structure just to charge what everybody else is charging.
Set your prices based on your own situation.
ALL YOUR COSTS
price of your item should cover the costs associated with it, its contribution
to the overhead, and profit. A
successful pricing strategy is one that results in the most dollars after all
your costs have been met. Be careful
in setting your prices too low: whilst
it may attract large sales volume, you may not be making enough revenue to cover
the costs of selling the merchandise. If
you set your prices too high, your sales volume may be so low you can’t cover
YOUR PRICES AGAINST INFLATION
prices must keep up with inflation. Inflation
increases your cost of doing
business, with the prices of your
materials, overhead and other costs increasing.
If you maintain your prices despite rising inflation, you will erode your
profit margin. Allow your
business to increase your prices at least once a year, but give your customers
sufficient warning about the price increase. Once you’ve established your
policies, constantly monitor your prices and operating costs to
IN YOUR PRICING THE VALUE OF YOUR TIME
committing the mistake of not including a salary for yourself, particularly if
you are operating a service business. Your
time is valuable, and you need to compute it in your pricing structure.
ARE NOT ALWAYS LOOKING FOR THE LOWEST PRICE
is not always the topmost concern of customers.
There are many customers who do not mind paying higher prices,
particularly if they know that they are purchasing exclusive merchandise, or
your business is located in a convenient or high-end location.
Many customers are willing to pay premium prices for quality service,
speedy delivery, helpful and friendly customer relations, excellent product
knowledge, or satisfaction in handling complaints
LOW, BUT SMART
common pricing strategy for small businesses, particularly new entrants into the
market is to price low just to get the work.
By pricing low, the aim is to penetrate the market and get as much repeat
business. However, be careful
that pricing low can have adverse repercussions on your business.
First, a low price may signal a low quality product and service..
Secondly, it may be difficult to raise prices later on once customers are
accustomed to your low prices. Third,
your start-up business is yet to develop economies of scale that makes it hard
to compete on price.
DISCOUNTS WITH CARE
discounts is a good strategy for encouraging repeat/ bulk orders, bundling
sales, and early payment of customers.
Discounts also allow you to more quickly sell products with vanishing
opportunity e.g. products with
sell-by dates, seasonal and quick obsolescence like fashion and technology.
You can stimulate demand for your products during the times when your
product/ service is less popular. Discounts
are also used to clear out merchandise that has become outdated.
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