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Determining prices and overall pricing strategies is one of the toughest challenges most businesses face. Should you be the low-price provider? Should you charge premium prices for premium products or services? What happens if competition enters or leaves your marketplace?
Many business owners default to a common position: They determine what the competition charges and then try to either meet or beat those prices. Over the short term that approach can be successful, but since many customers make purchase decisions based on considerations other than price, low-cost providers sometimes struggle to attract customers who make decisions based on a comparison of price and value.
To develop a pricing strategy, the first step is to gather data:
The goal is to understand your business model and operating costs as well as the current pricing strategies and price points in the marketplace.
Basic Pricing Methods
Once you have data in hand, apply one or more pricing methods to the specific business and market:
Price Strategy Objectives
Business strategies can also affect price. Keep in mind each strategy can have multiple effects; some positive, some negative. The company may use pricing strategies seeking to:
Pricing strategies should also be tied to company objectives. The following are common business goals and the effect on pricing:
Keep in mind the best pricing strategies are flexible and allow a company to respond to changes in supply or demand, new competition, changes in technology, etc. Price strategies should constantly be evaluated and tested to ensure the company maximizes return on sales while meeting a variety of other goals and needs