Friday, March 25, 2011

6 Steps to Setting a Price Strategy for your Business

As an entrepreneur, setting a pricing strategy and policy for your products/services for the first time when you develop it or when you introduce your product / service into a new geographical area, can be a big head ache.Reason being, that price is not just a tag on the product or service, it communicates to your customers your business’s intended value positioning and also determines your profitability.
When setting a pricing strategy you have to consider the following 6 factors;
1.      Select the pricing objective to decide where you want to position your market offering. The five major objectives that you can pursue are survival, maximum current profit, maximum market share, maximum market skimming or product –quality leadership.  Having a clearer objective makes it easier to set a price.
2.      Determine the demand. The price you set will affect the demand level and impact your business objectives differently. In normal situations, price and demand are inversely related, in that the higher the price the lower the demand and vice versa.
3.      Estimate the costs. While doing this, you want to charge a price that covers your cost of production, distribution and selling of the product plus a decent return for your efforts and risks.
4.      Analyze competitor costs, prices, offers and possible reactions. You should consider your nearest competitor’s price, product features and evaluate them to check their worth to the customers. You can then decide to charge more, same as competitor or less.
5.      Select a pricing method. When selecting, consider the cost of the product or service, competitor prices and the customer’s assessment of the unique features. The pricing method you decide should include one or more of these considerations.
6.      Finally, select the price. Here, you must consider the following: 1) Impact of other marketing activities like brand quality and advertising in relation to competition.2) Companies pricing policy, 3) Impact of the price on other parties like the distributors and dealers.

Price is not just a number on your product or service, it produces revenue and can determine if you reap in huge profits or suffer losses. Effective designing and implementation of a pricing strategy is thus important for your profitability.

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