To achieve a sensible pricing strategy, you need to do two things.
Understand what the competition is charging and what your customers would be willing to pay. Remember, your competition isn’t just similar businesses in your area. These days it includes online and e-commerce businesses too – both in New Zealand and internationally.
You also need to know what your business objective is, as this will directly influence your pricing. For example if your objective is to:
- Maximise your profits, you may charge as much as you can to generate as much profit as you can. Prices that are significantly higher than the competition mean that you could risk having customers go somewhere else, but that could be ok if you still get enough customers to make a profit (and you are doing less work).
- Increase or hold your market share, you might have to sacrifice some of your profits, and possibly charge less to certain customers.
- Match or beat the competition’s prices, you may price as low as possible. Pricing low can work, especially if you are aiming to grab new customers. But if you decide to compete head on with price, consider why. Is it just that you’re lacking confidence? If your competition includes larger businesses with deeper pockets, they’re always going to win the price war. You also don’t want customers perceiving your goods or services as lower quality than the competition. If you raise your price, up goes your profit margin.
Armed with this information, you’re in a much better position to establish the best price for your business.