PRICING YOUR PRODUCT OR SERVICE

The primary goal of business is to make a profit.  But many  businesses fail to do so because they don't know how to effectively price their products or services. Pricing is a pivotal element in achieving a profit and is one factor that businesses can control.

Before setting prices, you must understand your service or product's market, distribution costs, and competition. Remember that the marketplace responds rapidly to technological advances and international competition so you'll constantly be keeping abreast of the factors that affect pricing, being ready to quickly adjust.

Retail Costs And Pricing:

 A common pricing practice among businesses is to follow the manufacturer's suggested retail prices. Though suggested retail pricing is easy to use, it may be problematic. Merely pricing the product or service in this way may either create an undesirable price image, or not be mindful of the competition.

Competitive Position:

Another pricing strategy takes a little more research and business management ability. Consider who your competition really is (another business) and set your pricing accordingly. Don't try to compete with a larger company's pricing, Why? Large firms buy and contract in large volumes and with a broader customer base so their cost per unit or an increment of time will be less. Instead, highlight other factors, like customer service. Customers will often pay more for a good or service if they get courteous, prompt and personal service. Make it a goal to be a friend to all your customers so that they feel like a name, not a number.

Pricing Below Competition:

Let's say you want to hit the pricing issue head on regardless of the giants in the marketplace. Many shrewd vendors have been quite successful using this pricing strategy. Since this angle reduces the profit margin per sale, your  business should reduce its costs only if you can fulfill other factors. These include obtaining the best prices possible for the merchandise, locating the business in an inexpensive location or facility, closely controlling stock; limiting your lines to fast moving items. If you're going to "price at the lower end of the market," it also makes sense to design advertising to concentrate on "price specials" and to keep special service to a minimum. Remember that time is money.

Pricing Above the Competition:

This strategy is always any business owner’s dream and occurs when price is not the customers' greatest concern. You can concentrate on developing a loyal network of buyers. What considerations are important enough for customers to justify paying higher prices? These include service pluses such as delivery, speed of service, satisfaction in handling customer complaints, knowledge of product or service, and, above all, helpful and friendly employees. Also consider the most convenient location. Also keep in mind the pull of exclusive merchandise that you have advertised.

 
Service, Material and Labour Cost Components:

Materials, labour, and overhead make up the total cost of any product or service whatever your business. This is the cost of materials found in the final product. For example, the wood and other materials used in the manufacturing of a chair are direct materials. Needless to say, labour is the cost of the work that goes into the manufacturing of a product. The direct labour costs are derived from multiplying the cost of labour per hour by the number of hours needed to complete the job. Remember to use not only the hourly wage, but also include other employee costs you have to incur such as ACC Levies, holiday pay and any other employee benefits.

 

Overhead Costs:

Any costs not readily identifiable with a particular product or service should be considered overhead. These include repairs and maintenance, heat and light, depreciation, insurance, administration wages, accounting and legal services,  rent, advertising, bank charges, interest and transportation are also overhead costs.   

 
Your pricing structure and policy are major components of your public image and are crucial to securing and keeping your clientele. Cost, plus operating expenses, plus desired profit, equals the price of the good or service you sell. The key to success in a business is to have a well-planned strategy. Establish your policies and constantly monitor prices and operating costs to insure profit. Accuracy increases profits!