According to the Small Business Administration, the business owner should include a pricing strategy as part of her business plan. The development of this important component of a business plan allows a business owner to competitively price her goods or services and serves as an important benchmark for indexing profitability.
Conducting market research is a basic but important component of developing a reliable pricing strategy. This research should include a review of other national, regional and local entities with access to the business owner’s target market. A list of publications containing this data as collected by the United States Government is available for review through the Business.gov website. This review should assist the business owner in determining pricing baselines which can be used to benchmark the price of products and services against those offered by the competition.
Accounting for True Costs
A business pricing strategy should carefully account for issues such as seasonal product demand, labor, desired profit margin, office space, insurance, environmental demands, cost of production, required benefits such as social security contributions, fringe benefits and changing economic climates.
In a February 1, 2010, article posted by INC. Magazine, writer Elizabeth Wasserman states that two of the common mistakes made in developing a a pricing strategy are under-pricing and over-pricing. Wasserman makes the case that, by under-pricing products or services, the business runs the risk of appearing to be cheap or undesirable. On the other hand, business owners who over-price their products or services leave the business susceptible to attack from the competition.
Adding Intangible Value
In an August 5, 2010, article in Entrepreneur magazine, writer Paul Spiegelman advises the business owner to add to the pricing baseline by building intangible product value. Spiegleman posits that the business owner should go the extra mile in providing a superior product through an attitude of service which will cost little but maximize value to the consumer. This type of value building is hard to account for in a baseline pricing strategy, but creates additional product demand.