Article

Factors to consider in Pricing Strategies for your businesses

Written by Jennifer Mears

Topic: Continuing EducationPublished June 13, 2011

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Trying to decide on the “correct” price for your business’ products and services is a challengingrnEndeavour. It’s possible to ask three different kinds of questions:

How much will customers be willing to pay? (Customer-based pricing)
How much do we need to sell to make a certain amount of profit? (Cost-based pricing)
How much are competitors charging? (Competitor-based pricing)

Of course, the question most relevant to your product and services depends on what type of marketrnyou find yourself in. If you have a monopoly and are the only seller of super-widgets you can set whatrnprice you like. If you find yourself in a market with a lot of competition, it will be wise to answer all threernquestions and run different pricing scenarios for each.

The following three factors will help evaluate the market for product or services:

Competitive Analysis
When we examine our competitors, we can focus on other areas apart from the price alone. Say forrnexample you notice that a competitor’s price is hard to match. You also notice that they are alwaysrnout of stock and have long lead times. The market will probably take a mark-up to their price if you canrnstress shorter lead times and a continuous supply.
Ceiling Price
Looking at a product or services ceiling price is a good way of gauging the range of prices available.rnUsually, for products that have been on the market for a while, they will never hit the ceiling pricernagain (antiques aside). If you’re selling a product, it’s worth considering the product life-cycle as thernmarket will pay less when they reach maturity and then ultimately decline (as is the case with HomernComputers).
Price Elasticity
Put simply, price elasticity is how the level of demand changes with price changes. Some goods arerndeemed to be “inelastic”, such as petrol, cigarettes, and alcohol. The demand for these good does notrnchange in proportion to price rises (people still need to drive their car for example) and this is the mainrnreason why the government taxes them heavily (and their price always changes).
Trial and error (where possible) is a good way of determining the elasticity for your own products orrnservices. However, consumers generally do not like change. If you notice that stocks are selling outrnquickly (stock turnover is high) or is sat on the virtual shelf for too long (Stock turnover is low) chancesrnare you need to change the price.

The Importance of Research
Once you have chosen an appropriate price level it is important that you constantly review it. Thernmarket remains dynamic and in this modern, information age your competitors will be monitoring yourrnresults closely. With the advent of the internet consumers are kept well informed about prices, too. Thisrnis especially true if your products or services are exactly the same (homogenous).

Research is of vital importance as product pricing should be performed in advance of the product beingrnmade available for sale. However, as the market is so dynamic the lead-time between research andrntaking the project “live” needs to be as short as possible.

Article author

About the Author

Jennifer Mears is a freelance author who writes about various computers and business training topics, To know more about Jennifer's Training ideas please visit. http://www.progressivetraining.ie

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