TIPS FOR THE ENTREPRENEUR: A Few Tips on setting just the right price
Too bad setting prices is one of the most critical challenges faced by any entrepreneur assuming you have a product worth selling, price is the biggest factor that affects the success.
While big companies can afford to millions to run sophisticated tests in multiple markets, small shops have to rely on less perfect information.
Pricing professionals will tell you that setting a product’s price involves as much art as science but it doesn’t have to come down to taking a wild guess.
Here are five simple, relatively low-cost steps at making that best guess.
Step 1: Do Qualitative Research
Start to hone in on the right price by running surveys to get a sense of what customers are willing to pay.
If it is tomato sauce you are selling, ask consumers about what they like about tomato sauce and what they don’t; that way, you will know if your marketing message will hit home. Do not ask them directly what they would pay for a particular kind of tomato sauce but instead ask how much they think such an tomato sauce would sell for in a store.
Step 2: Do Quantitative Research
You have done your initial research now it’s time for some hard numbers. This step involves in-person or Internet surveys, or perhaps product trials with feedback forms. With questions like What price do you pay for tomato sauce? Would you be willing to pay a higher price for a tomato sauce with certain characteristics?
Step 3: Plan Your Attack
Before you set your price, decide how you want to attack the market. Will you try to cripple competitors by going low and stealing market share? Or, do you charge a higher price and capture a smaller, but perhaps more committed–and profitable–customer base?
Step 4: Pull The Trigger
At this point, a big company might pour huge sums into running tests in a bunch of markets to figure out the optimum price for a new product. Small companies simply can’t afford to do this. So take what information you have, marry it with your strategy and pick your price.
Step 5: Don’t Let Success Go To Your Head
So your tomato sauce is selling like hot cake and you figure: Why not raise the price and increase your bank balance? Be careful: It is much easier to increase prices than it is to lower them; indeed, you could send shoppers running the other way.
If sales are low, consider lowering the price but not by too much. For consumer packaged goods, even a 1% decrease in price can lead to a 5% increase in sales. Slash prices, though, and you could tarnish your brand’s image permanently.
Filed under: BUSINESS ACUMEN |