One of the most difficult decisions to make as a business owner is how much to charge for your products. There is often a reluctance to review pricing because of the fear of upsetting existing customers or due to a lack of time. However, there are a number of actions you can take to make your pricing process smoother and more robust, ensuring that your pricing is correct for you and your customers. The following framework provides practical instructions on how to review your pricing.
- Refer back to your business plan to confirm how you were planning to position your products in the market, and whether your current pricing is consistent with that plan. If you don’t have a business plan, create one.
- Consider what you’re trying to accomplish with your pricing. Pricing can send a direct message to your customers regarding who you are as a business and the type of products you offer. For example:
- Customers can assume, rightly or wrongly, that more expensive products are better quality than cheaper alternatives,
- Customers also tend to resist products they see as too highly priced; however, they also resist cheaply priced products because they assume they are low quality.
- Consider how prices will affect demand and seek active feedback from your customers, including how they value your products.
- Consider the needs of customers and the value they place on your products. This can be a major pit-fall in pricing because customers may be willing to pay more than you realise. Customers who are unhappy with pricing on the other hand will generally let a business know how they feel, or they just won’t purchase the products.
- Consider your competitor’s pricing and any perceived or real difference in value provided. This is to ensure that the business is making as much as it can and also that you are not being priced out of a market.
- Consult with a business advisor. They will have a wider understanding of what is happening in the marketplace and can help guide you through pricing decisions.
- As a general rule you should review your pricing at least annually. This is to ensure that pricing is still consistent with industry best practice and that you are getting all that you can out of your business.
The reality is that incorrect pricing can seriously undermine business performance. In a changing business landscape customer’s ideas on value can change rapidly. Businesses therefore have to be more responsive and proactive in their pricing to ensure that products are priced appropriately.
All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers, for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information.