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The Perfect Price
March 11, 2007
Without a doubt, one of the hardest parts of starting a business is the art (there is no science) of pricing one’s products. When a person starts any business, there is always a certain amount of insecurity about just how good your product really is.
Is it better to price your product cheaper than your competitors or charge more because you feel it’s a superior product? Unfortunately, there is no such thing as the perfect price. Any number of factors may determine the price of your product. Here a just a few ways to establish the price for your product:
- Shop the competition. What are others charging for the same type of product? If your competitor’s products features and benefits are similar to your products, use the price of the competing product as a possible price point for your product. If your product is of superior quality, then you might be able to justify a higher price and still be competitive. If your product is inferior, then your price point will be less.
- Calculate your cost. How much does it cost you to produce and deliver your product? This may seem like an obvious question, but it isn’t. Not only will this include the labor, materials and the other components involved in making your product or providing your service, but rent, utilities, sales and marketing costs, employees, and other general operating expenses that you need to pay to run your business day to day.
- Determine perceived value. Perceived value is one factor many entrepreneurs use to determine product pricing. It’s not exactly like pulling a price out of thin air. Tim W. Knox, from Entrepreneur Magazine describes perceived value— “What makes a $10,000 Rolex watch more valuable than a $10 Timex? Functionally, both are watches and both perform the exact same function: They tell time. Why then does one sell for a thousand times more than the other? The answer is because it has perceived value. An expensive wristwatch cannot make you better looking, smarter, healthier or more popular with the opposite sex. But the perception is that if you have a Rolex on your arm, you must have something going for you that the wearer of a $10 Timex does not.”
Posted by Shanu Singh Guliani on March 11, 2007 | Comments (0)
