Why Is a Pricing Strategy Important to the Success of Your Business?

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Your pricing strategy involves evaluating the price you will charge for your product or service, and how this price fits in with your overall marketing plan. Unlike advertising, which overtly disseminates a message, pricing provides a subtler cue about your company, attracting a particular demographic or making a statement about your product's value. A pricing strategy is also a practical matter because your company cannot succeed if you do not earn enough to cover costs.

Charging Enough to Cover Costs

  • The primary function of pricing is to specify how much money you will receive in exchange for your product or service. In order for your company to succeed, you must charge enough to cover your costs and earn at least a modest profit. When calculating how much you will have to charge to cover costs, keep in mind that your business will achieve economies of scale as it grows. In addition, you may earn more by charging less -- as long as you are charging enough -- because lower prices often result in higher sales.

Charging a Fair Price

  • For the most part, customers will choose a lower priced item over a higher priced item that they perceive to be of comparable value. Charging a low price encourages many customers to buy your products and services by making them affordable and offering them a reason to choose your products over those of your competitors. Charging a fair price does not necessarily mean charging the lowest possible price. If your product is of high quality, you may develop a marketing strategy based on charging more than inferior products but relatively little for such a high quality item.

Perceptions About Price and Value

  • For some consumers, a higher price may actually be a selling point, especially if they are purchasing an item that they regard as a status symbol or a product that makes a statement, such as local and organic food items. If these types of customers are the most likely demographic to be attracted to your products and services, you may be most successful by choosing a price that communicates to them that your product or service is well worth the extra money they will pay.

Pricing Relative to Competitors

  • Evaluate your competitors' prices in order to to develop a pricing strategy that will help your business succeed. Look at the amount they are charging, as well as the tangible and intangible value that they offer, and position your offerings relative to their products and services. For example, if you offer Web design and your selling point is simplicity, charge less than competitors who offer complex packages.

References

  • Photo Credit carrots with price image by Jo Ann Koch from Fotolia.com
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