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Proper Pricing is Key to Success in Troubled Times

Dec 17, 2008

Pricing is a vital part of marketing a product. It is generally considered one leg of the “4 p’s”, which are product, pricing, placement (location) and promotion. If any of these legs is weak, then your product will have a much lower chance of succeeding.

 

So how do you know if your price is right? Too many businesses only look at one factor. Some look at what it costs them to make the product and then mark-up from there. Other look at what competitors are charging and match that. Others look at the profit that they need to survive and price accordingly. Which is right? All and none of them!

 

Now that I have you sufficiently confused, the real answer is that you need to look at all of these things when you set your prices. You have to understand what competitors are charging to be sure that your price is competitive. However, don’t forget to look at the total price picture. What things are different from your competitors. Is your product superior? If so how. Are your terms different? What is the value or cost to the consumer of those differences? If you offer free shipping, then your price can be higher than a competitor who doesn’t.

 

You also need to know exactly what your product or service costs you to make or provide. This is not just the physical components, but also the cost of your operation. If you price to cover the dollars that you pay for components, you won’t cover the cost of salaries, marketing, store rents, etc.

 

I recently had an example where a client had a superb product that was across the board better than anything on the market. He priced the product at the same level as a competitor that had an inferior product. After we talked, I suggested that he try raising his price. He resisted, but after thinking it over talked to someone else in his industry, who told him the same thing. He went ahead and raised his price…and sales volume didn’t change at all. By properly pricing his product, he’s selling just as many units as before, but now he’s making substantially more money on each unit sold and his business is profitable.

 

It is vital to the success of your business that you properly analyze your pricing for each product to ensure that you maximize the potential sales and profits to your business.

 

How do you go about pricing your product? Do you have any lessons to share?

Posted By: Michael Lambert



Tags: Pricing
Category: Marketing

Mike Lambert

Mike Lambert is the manager of the Wyoming Market Research Center in Laramie, WY.


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