Attract the Right Job or Clientele: Improving Your Sales Through Strategic Pricing
Note: As you read through, job seekers please consider your requested salary.
Skillful pricing professionals are among the highest paid corporate officers in the world of business – and for good reason. Their job is difficult, stressful and if they get it wrong, a slight mistake can cost a business big money. The delicate balance between charging too much and charging too little for a given product in a certain market is a difficult tightrope to walk. Go too low and you lose out on profit. Shoot too high and you'll lose sales to lower priced competitors. Follow this guide to taking the mystery out of pricing.
Price too low, and you could lose profit. Price too high and you could lose sales.
If You're Unsure, Go High, Not Low
As discussed in the article "Advice on Pricing in New Markets," a lot of businesses make the mistake of following their instinct to price low in an attempt undercut the competition. This is especially true in new markets where their brand isn't established, or when launching a new product.
There are a few problems, however, with aiming too low.
Once you set a low price, it becomes difficult and costly to ever raise it again in the future. Once people get used to paying $3 for widgets, $3.25 makes them reconsider how badly they need them in the first place. Some businesses underprice to gobble up a large initial piece of the market share with the assumption that they'll be able to adjust the price upward once they establish a loyal customer base. In most cases, however, customers are only as loyal as their budgets allow.
Price According to What Your Product is Worth – and Nothing Else
It is important to look at what competitors are charging, or the price that other variations of your product command elsewhere. But pricing should be based on one factor: customer perception of your product's value. Being able to get it cheaper somewhere else doesn't always add value for a customer.
Convenience stores, for example, sell common commodities like bread and eggs at a higher price than big grocery stores – and everybody knows it. But convenience stores are still in business because of exactly what their name implies – it is more convenient to buy bread with a quick, in-and-out purchase close to home than it is to go into town and shop at a larger store. Therefore, their bread, eggs and milk are more valuable to some customers.
Adjusting to New Markets
Pricing in new markets is never easy. If you're entering a new market, it is because demand exists. If demand exists, so too do competitors. Your audience and market share will, of course, impact your pricing strategy. But it is crucial to have enough product to satisfy the demand that is created by that strategy. If you lure buyers with low prices, you had better have enough inventory to meet that demand.
If you are uncertain, price higher than you think you should, not lower.
Pricing is a delicate, difficult balance to strike. But the natural urge to err on the low side of the spectrum is usually not the right choice. Let the consumer – not your competition – determine the value of your product and remember that it is much easier to lower your price after a product launch than it is to raise it down the line.
Andrew Lisa is a freelance writer who covers small business management.
Following Lisa's advice will lead you to the Smooth Sale!
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