Pricing products key to business success

APRIL 2008 - A few simple principles can be crucial to your businesses success. These principles were highlighted during a meeting of the Chamber’s Small Businees Council on April 19. Here are a few of the tips that Nate McBride of the San Joaquin Delta College Small Business Development Center (SBDC) discussed.

Principle #1: Price should be based on quality and value. Claiming you have high quality but also low prices presents a confusing message of overall value. Business owners should also know how the quality of their products and services compare to their competition to help them set comparable value prices. It should also be noted that customers’ perceptions can influence how they view quality and value.

Principle #2: Being the lowest price is rarely the best competitive position for small businesses. Pricing is never the primary buying criteria, although it is high on the list for some customers, and in some industries. Business owners should know how price sensitive their industry is, and understand that some customers are more price sensitive than others.

Principle #3: Every business must find ways to increase prices over time. All businesses have cost increases over time. Many fear they will lose customers if they raise prices. If a business does not raise prices its profits will decrease unless unit volume is increased. Business owners need to find ways to regularly raise prices, and effectively communicate reasons for price increases to customers.

Principle #4: To effectively set prices you must know your costs. Profits are a function of margins or mark ups, fixed costs, and quantity of sales over time. Knowing your costs and sales volume will help a business set prices to reach desired, hopefully increasing, profits over time. As costs change over time, creating the need for periodic price changes.

Other steps to optimize pricing include:

Offering something free (and potentially raise price), bundle products or services to add value and increase sales per customer or transaction, add convenience, merchandising, service, etc. to increase value, expand offerings in different price ranges to give customers options, always promote value, service, etc. before price, a more detailed version of this workshop is available at the SBDC on the following dates: May 13, June 26, July 16, Aug. 19.

Call for times and to make a reservation; 209-954-5089.