Here are some of the factors that you need to consider before pricing product or service:
* Positioning - How are you positioning your product in the market? Is pricing going to be a key part of that positioning? If you're running a discount store, you're always going to be trying to keep your prices as low as possible. On the other hand, if you're positioning your product as an exclusive luxury product, a price that's too low may actually hurt your image. The pricing has to be consistent with the positioning.
* Demand Curve - How will your pricing affect demand? You're going to have to do some basic market research to find this out, even if it's informal. Get 10 people to answer a simple questionnaire, asking them, "Would you buy this product/service at X price? Y price? Z price?"
* Cost - Calculate the fixed and variable costs associated with your product or service. How much is the "cost of goods" and how much is "fixed overhead". Remember that your gross margin (price minus cost of goods) has to amply cover your fixed overhead in order for you to turn a profit. Many entrepreneurs under-estimate this and it gets them into trouble.
* Environmental factors - Are there any legal or other constraints on pricing? what possible actions might your competitors take? Will too low a price from you trigger a price war? Find out what external factors may affect your pricing.
* Positioning - How are you positioning your product in the market? Is pricing going to be a key part of that positioning? If you're running a discount store, you're always going to be trying to keep your prices as low as possible. On the other hand, if you're positioning your product as an exclusive luxury product, a price that's too low may actually hurt your image. The pricing has to be consistent with the positioning.
* Demand Curve - How will your pricing affect demand? You're going to have to do some basic market research to find this out, even if it's informal. Get 10 people to answer a simple questionnaire, asking them, "Would you buy this product/service at X price? Y price? Z price?"
* Cost - Calculate the fixed and variable costs associated with your product or service. How much is the "cost of goods" and how much is "fixed overhead". Remember that your gross margin (price minus cost of goods) has to amply cover your fixed overhead in order for you to turn a profit. Many entrepreneurs under-estimate this and it gets them into trouble.
* Environmental factors - Are there any legal or other constraints on pricing? what possible actions might your competitors take? Will too low a price from you trigger a price war? Find out what external factors may affect your pricing.
Source: http://entrepreneurs.about.com/od/salesmarketing/a/pricingstrategy.htm
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