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Pricing Strategies

So you are new in business, you just looked around your neighborhood and found five more businesses that will compete against your new venture. Under normal circumstances, you will be faced with two daunting scenarios; one is to price high and use aggressive marketing or put your price bellow all your competitors in the hope to catch people looking for the cheapest product.

Does lowering the price necessarily translate to higher sales volume?

Not necessarily. Cutting yourself too low on products that costs you more, could end up eating into your profits and dry up your working capital. Instead of simply lowering the price, you may want to consider some of the pricing strategies discussed bellow:

Cost-based pricing

This strategy is based on marking the price up by a certain percentage of the cost to give you a desired profit. This involve calculating the total costs, and then decide on a percentage profit you would like to make on top of your costs.

Negotiating individually

With this strategy, the price is dependant on how much the customer is prepared to pay for the product or service; you Normally start higher knowing that the client or customer will argue for a lower price. This can be risky, you might end up selling at a loss if you are not good at haggling or negotiating. If you are a crafty negotiator however, you may notice the range at which customers are most eager to buy, that usually is an indication that the price is most favorable to them and you may actually want to push and settle for something just above that range.

Skimming

This is a strategy that works well in less saturated and high demand business environments. What happens here is that the seller will initially charge a higher price in order to recoup most of their invested money earlier on and then lower the prices as time goes on and competition intensifies. This may not work well in some markets, it may work well if you are first in your market and there is high level of awareness of the value of your products and services.

Segmented or differential pricing

This is when you charge different prices for different consumer segments. For example, you could charge different prices or discounts for senior citizens than for everybody else.

One thing to remember here is that pricing is not just a financial issue, it is as much of a marketing issue as it is financial. If you manage to position yourself or create a perception of a superior product or service, you might still be able to outsell competitors with lower prices. Your performance in the market place will be highly influenced by what is known as the 4Ps or the marketing mix (Product, Position, Price and Promotion). How good you navigate and address these four issues determines how well you do in the market place.

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