In business, few decisions are more crucial than the price you charge for your product or service. interestingly, research indicates that many owners of businesses and professional practices underprice their products and services. In theory it might seem that only the seller offering the product or service at the lowest price ought to do any business. But in reality, the highest priced seller might be moving the greatest number of units.
As a general principle, you should charge as much as possible for your merchandise or services. But there are dozens of factors (kind of customer you want to appeal to, competition, selling for cash or credit, your willingness to accept returns, guarantees) to examine before you can figure out your best prices.
You can offer the lowest prices possible, but to do so you will probably give up amenities that others in your industry offer: personal attention, delivery service, prompt replacement of defective merchandise, unquestioned refunds, and/or easier credit terms. If you don't offer such service, be prepared to lose shoppers who want it and are willing to pay for it. Many businesses fail to realize that, with low-cost competitors, it's often more effective to position a product/service higher upscale than it is to cut the selling price.
For Example:
Japanese motorcycles are priced around 25 percent under Harleys. But Harley-Davidson stresses custom styling, American origin and the mystique of a powerful road machine. The image is reinforced by heavy advertising and the customers' club. The message? Only Harley offers the real thing - anything else is a cheap substitute.
Lower than average prices generally fail to increase sales enough to raise profits if any of the following are true:
- You fail to advertise low prices widely
- Items are rarely bought
- Customers lack a clear basis for comparison
- Luxury items are involved
Pricing a product or service each have three-step process:
