The prices you charge for your products (or services) greatly affects your company’s growth, and ultimately profit.
Pricing impacts your image – it will lure some customers to your business and drive others away. Pricing is inter-dependent on several factors:
- Your Market – not only geographically, but also product type
- Your Competition – upscale specialty stores have a different strategy than discount retailers
- Your Costs – a certain percentage mark-up may not work if you’re selling more in quantity without changes in overhead
There are many variables to consider when setting a price, and it must be adjusted as times change.
You have to remember the standard economic formula of Supply = Demand. You can charge whatever price the market will bear. That sounds like a very obvious statement and one that is difficult to achieve. Let’s see if we can think about this and make it clear.
Let’s use the first I-Pad launch last year as an example. The pre-launch ads and publicity had buyers ready to pay anything for this new product. The product had never existed and people were paying in advance to get one. No Supply and Huge Demand.
Apple set a high price on the new gadget and pitched their reputation to loyal customers and early-adopters in the technology market. Apple made the strategic decision to market to that specific demographic. Their ads were targeted and very effective in driving sales.
Three months later, the next round of advertising was directed at bargain shoppers, those who believed in Apple but are cost conscious. The product reviews were good and the prices came down. Huge Supply = Average Demand = More Buyers.
Obviously, the I-Pads sold the first day and those sold 3-6 months later have the same production costs. Apple had the strategy to start high and ride the pricing wave downward.
Just in time, here comes the next generation with that high price tag. The record setting lines stretched around the block – people were already upgrading and others couldn’t jump on the band wagon fast enough!
My point is that there is a relationship between pricing and perception. Customers have a very strong opinion about what something should cost.
Let’s get back to the decisions you made in your Business Plan. It’s time to take a minute, stop running your business and think strategically. Consider these six, dollars and sense questions…
- Have you reviewed your pricing lately?
- Have you done any competitive research in your local market?
- Do you have a written formula for pricing?
- Is there a standard percentage mark-up?
- Are you including overhead expenses in your break-even analysis.
- Do you have certain products that you can bundle together as a package?
I recently put together packages of services because prospects often needed the same thing. I priced it at a low, introductory rate because I prefer working with startup entrepreneurs. I matched the level of services to the desired price point. The break-even point was determined and I have a sales goal. Now I am marketing the packages and seeking this type of prospect. It’s a strategy.
What are you doing about your pricing? What’s your strategy? It’s time to crunch some numbers and find more profit in your business! Kirsten Peck
