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How to develop an effective pricing strategy | Updated: 3:13:06 PM, Tuesday June 12, 2012
Use this handy checklist to establish a pricing strategy that works for your business.
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Pricing strategy often presents small businesses with an eternal conundrum. Establish a pricing strategy that works for your business with our checklist.
Although many companies rely on competitive pricing to gain an edge over rivals, establishing a reasonable price for the services or products you offer is often fraught with challenges.
Cost versus value
Deciding on a cost-based or value-based model should be step one in developing a pricing strategy that is line with your business goals. If you choose a cost-based pricing structure, decide on the gross profit you would like to make on top of the amount the item cost. For example, if the item cost $200 and you would like to make a 20 per cent gross margin, you would charge your customers $240.
However, if your business is less fixated on cost and more concerned with the benefits a customer will derive from your service, consider a value-based model. Although this approach often relies on heavier marketing efforts, the payoff is usually worth it.
Do your research
Before you set your pricing, it’s important to have a keen understanding of your marketplace. Make sure you research your competitor’s prices and keep abreast of promotions or special deals that resonate with customers. Keep these in mind when it comes to constructing your own price list.
Don’t be reluctant to test your pricing and tweak it according to what you find. If you’re in retail this is relatively easy, but other industries might have to get a little more creative. Surveys, focus groups and social media are all valuable tools for gathering customer information and developing a pricing system based around the data.
Understand your point of difference
The most challenging element of any pricing strategy is to identify if it’s your product or unique value proposition that sets your business apart. Once you’ve established your key strengths, put yourself in your customer’s shoes, this can help give you a clearer picture of what your services are worth. Don’t forget to project related costs and incorporate these into your final price.
Don’t be swayed by the competition
Although it’s smart to keep abreast of your competitor’s rates, it’s essential that you base your pricing on the value you offer and not fickle market trends. If you stay true to your value proposition, your clients are more likely to respect the services you provide, even if what you charge is a little above the average.
By doing research, understanding your target market and forming a suitable pricing strategy around feedback and results, you can establish the ideal pricing scheme for products and services that your business offers.
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