One of the most important decisions you will make in business is the price you charge for your product. Setting an incorrect price will at best limit you business growth, but at worse could cause major cash flow problems.

When setting prices, you must make sure that the price and sales level set will allow your business to be a profitable company. However pricing reviews should be carried out on a regular basis as this allows most established companies to improve their profitability, and also gain a better understanding of pricing tactics of competitors.

Cost and Value

Understanding the differences between cost and value can increase profitability

Cost

Cost is the amount a business spends on producing a product or service. Raw materials, overheads and labour costs all have to be factor into the cost of a product.

Price

Price is the financial reward for producing a product or service. Pricing should be in line with the value of product, while also bearing in mind the amount you competitors are charging.

Value

Value is what the customer believes the product or service is worth.

Different pricing tactics

Pricing tactics can help you to attract more customers and increase profits.

Discounting

Discounting can be a powerful tool in attracting customers towards your business. Discounts on multiple purchases, bulk discounts and clearance sales are all methods of discounting which can attract customers to your business. However you should be careful as discounting too much of your product can leave customers questioning the full-rate price in the future, or even see you as the cheap option.

Odd value pricing

A tendency, particularly in the retail sector, is to price products short of whole pounds. For example £9.99 instead of £10. The reasoning behind this being that odd value pricing is perceived by some customers as more attractive

Loss Leader

This involves selling a product at a loss, to attract more customers towards the business who may possibly buy other products.

Skimming

Selling a unique product at a high price is known as skimming. However you need to ensure that the product is unique, otherwise you price yourself out of the market.

Penetration

This is the opposite of skimming, by starting at a low price and gain market share. Once your business has a loyal customer base you should then be able to slowly raise the price of the product.

For more information, see website below;
www.businesslink.gov.uk