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How
Do I Price My Products & Services?
Some businesses don't have to worry about
pricing because there is a market price for their goods or
services that can't be modified, such as the price of developing
a role of 35-mm color film at a Photo franchise shop, for example.
But most businesses have to decide how to price their goods
or service and whether it will be lower, the same as, or higher
than the market price.
The price you can charge above what is needed to cover
overhead is usually not a matter of supply and demand, although traditional
economists might try to tell you otherwise. For most businesses,
the price charged determines the type of client the business
will have, not the number. Usually, changing the price only
changes who your customers will be. A low price will attract
few customers if you don't offer what they want, and a high
price can bring in many if you do.
The
price of your merchandise or service tells the customer
a lot about what they can expect from your business. A low
price often means that customers must serve themselves and
that there will be no refunds or returns. In a service business,
it implies amateurism and inexperience or, at best, that you're
dealing with a start-up. A high price can often mean the opposite.
Prices
that are out of line with those of similar businesses need
to be justified to customers through added value. Customers
will sort themselves out according to the value they want,
and those who choose your business will do so because you meet
or exceed their expectations. For example, a marketing research
consultant who charges $1,000 per focus group research session
will be expected to show up twenty minutes before the session
to discuss it with the client. Afterwards the consultant will
deliver an audio-tape and a one-page summary of the session.
The same consultant charging $2,000 per session will be expected
to meet with the client for at least an hour during the week
before the session, to hold the session in an interview room
with a two-way mirror and a video camera, and to deliver a
verbal presentation and a five to ten-page summary a few weeks
later. The pricing determines the client's expectations.
Pricing is subjective. You have to charge enough to make it
a job worth doing - so that it pays for itself. And you can't
charge so much that people are put off by the price. Pricing
is not that important to a lot of people, particularly with
small businesses. People are more interested in quality than
price. If you're a good auto mechanic, customers will happily
pay you $35 an hour, rather than risk leaving their car with
someone they don't know who charges $20 an hour. Unless it
gets outrageous, price will not scare people away.
There are three basic rules to follow when you are determining
the price for any product or service:
- pricing
should be easy to understand,
- the
price should be complete, and
- the
customer should have a reasonable number of pricing options.
The
price should be complete. Not only should
the customer understand how you arrived at your price, but
it should also
be clear to them that there aren't any surprises. Just recall
for a moment the kind of pricing that charges you for every
little part. "On sale now! This computer only $599 (keyboard
and monitor not included)." What good is a computer without
a way to put in data (keyboard) and a way to see what you're
doing (monitor)? This is a form of deception, and not a very
subtle one. Most of us would much rather see "This computer
is only $999 (keyboard and monitor included)." It instills
a much higher level of trust.
Last
but not least, the customer should have pricing options.
On the one hand, we've just implied that you should lump
the
components together and tell the truth about the minimum combination
that is actually usable. On the other hand, one way to give
customers a reasonable number of pricing options is to break
the system down into interchangeable parts. The choice is yours
and you must find what works best for your business and your
potential customers.
# # # # # SolveYourProblem.com : 2007
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