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WHY YOUR BUSINESS NEEDS A PRICING STRATEGY

"What should I charge?" is an infamous question often answered with an educated guess. Most small businesses have no pricing strategy whatsoever, or the strategy they do have is completely haphazard. So much opportunity is left on the table.
 
WHY STRATEGY?
Having a pricing strategy is important because it gives you a roadmap for determining the best price for your product or service so you can maximize profits, revenue, and shareholder value.
 
It's called a pricing strategy because not every price you set will necessarily maximize your margins. You might decide to use a product's price to compete for business, increase market share, unload excess inventory, or create different revenue scenarios.
 
FACTORS TO CONSIDER
Be thoughtful about what you want when deciding your pricing strategy. Maybe you are pricing consistent with your geographical area or are wanting to promote a particular product or service. Or maybe you are pricing your product as a premium or as a loss leader. Determining factors start with what you want your position to be.
 
You will also need to consider the costs of production, labor and market conditions, your business costs, and what you need to stay afloat.
 
PRICING AFFECTS SALES
Getting the right pricing is a collective balancing act. Price it too high, and your customers may find what you offer elsewhere for less money. Price it too low and you'll lose money.
 
Ideally, pricing affects sales in a good way because when your prices go up, your sales and revenue go up, too.
 
PRICING SENDS A MESSAGE
There's truth to the saying, "You get what you pay for." The key is knowing your target audience, and your product or service's place in the market. What do you offer that is different from everyone else? The right target audience will pay a premium if they consider it unique and valuable.
 
Buy a fake Gucci watch, and you won't be surprised if it falls apart in a week. Spring for the designer bag instead of a knock-off, and it will likely be in excellent condition for as long as you live.
 
Pricing also sends a message about clout and affluence. There's an impression associated with premier products, and a strategy around matching the price of a product or service with consumer impression. Savvy brands know where their product is positioned in the marketplace, and have adjusted their pricing strategy according to perceived value.
 
TAKE ADVANTAGE OF PRICE INELASTICITY
Price elasticity measures the responsiveness of demand after a change in pricing. If you like math, the equation is the % change in quantity divided by the % change in price.
 
If you raise your prices and demand falls because consumers can find a lower-price substitution, that's price elasticity.
 
Prices inelasticity is when you raise your prices, and the demand doesn't change or barely changes at all. OSU charges more per ticket for certain football games because fans will pay it. Fans will also pay inflated drink prices once they get there because that's what's available.
 
If you are in a business that can take advantage of a situation like that, you absolutely should.
 
DON'T PRICE ACCORDING TO YOUR COMPETITION
This is so important to remember. Your pricing only matters to your buyer. Not to your competition.
 
You should price your product or service solely based on its value proposition, and how it fits in the marketplace. Don't price it according to what your competition is doing. While it's important to know and understand your competition's pricing, it should not be the driving force behind your pricing strategy.
 
If you have a superior product, price it that way. Focus on selling it to the right buyer instead of undercutting your competition to reach price-conscious people.
 
WHO SHOULD BE INVOLVED
A business really needs a CFO or a finance advisor who understands financial modeling and can match the financial needs of the business with its financial strategy. This is challenging for the small business owner because they often don't have an internal strategic financial leader on staff.
 
If that's the case, you could outsource this function. There are companies out there that specialize in pricing strategies for small businesses.
 
Have questions about your business's pricing strategy? Just reach out, and we'd be glad to help.
 
How do you determine pricing in your business? Share with us on LinkedIn, Facebook and Twitter!
 
 
 


INDEX
  • WHEN SHOULD I HIRE A PRESIDENT?
  • WHEN SHOULD I HIRE A CHIEF PEOPLE OFFICER?
  • WHEN SHOULD I HIRE A CHIEF MARKETING OFFICER?
  • WHEN SHOULD I HIRE A COO?
  • HOW TO EXIT YOUR BUSINESS WHEN YOU DON'T HAVE A BUYER
  • WHEN SHOULD I HIRE A CHIEF FINANCIAL OFFICER?
  • IT'S NOT THE GREAT RESIGNATION; IT'S THE GREAT REALIGNMENT
  • WHEN SHOULD I HIRE AN HR MANAGER?
  • WHY YOUR BUSINESS NEEDS A PRICING STRATEGY
  • THE 4 Cs OF EVERY SUCCESSFUL BUSINESS
  • WHAT IS A CEPA ADVISOR AND HOW CAN ONE BENEFIT YOUR BUSINESS?
  • THE FALLOUT ON CULTURE WHEN YOU DON'T HIRE A PLAYERS
  • THE ROLES OF SALES IN YOUR SMALL BUSINESS
  • FINDING THE PERFECT GIFT FOR THE ENTREPRENEUR IN YOUR LIFE
  • THE BENEFITS OF OWNING A SMALL BUSINESS
  • WORKFORCE IN MOTION
  • GOAL SETTING FOR 2022: WHAT TO DO NOW TO BE SUCCESSFUL NEXT YEAR
  • LESSONS LEARNED AFTER PUBLISHING MY FIRST BOOK
  • WHY YOUR BUSINESS NEEDS INNOVATION
  • THE COVID-INSPIRED SPIKE IN ENTREPRENEURIALISM
  • THE PROS AND CONS OF OUTSOURCING YOUR FINANCE AND ACCOUNTING SERVICE
  • HOW TO SET GOALS IN 2021
  • THE LEADERSHIP EVOLUTION OF YOUR BUSINESS
  • HOW TO GET THE MOST OUT OF YOUR ADVISORY BOARD
  • THE PANDEMIC-INDUCED INNOVATION OF MEETINGS
  • HOW TO USE THE 8 P'S OF MARKETING TO GROW YOUR BUSINESS
  • BEST PRACTICES FOR COLLEGE FINANCING
  • SCALING A BUSINESS - ARE YOU READY?
  • THE HALFWAY POINT: IT'S TIME TO REVISIT THOSE BUSINESS GOALS
  • GROWTH WITH PURPOSE: SUCCESSION PLANNING
  • GROWTH WITH PURPOSE: EVOLUTION OF FAMILY LIFE
  • GROWTH WITH PURPOSE: FINANCIAL RISK
  • GROWTH WITH PURPOSE: INTEGRATION
  • GROWTH WITH PURPOSE: WHY ARE YOU GROWING YOUR COMPANY?
  • GOAL SETTING 2020: HOW TO KEEP YOUR GOALS FRONT AND CENTER ALL YEAR LONG
  • ASK GERBER: HOW TO STAY LASER FOCUSED DURING THE HOLIDAYS
  • Ask Gerber: How to Identify Your Business's Culture When You Don't Think You Have One
  • Ask Gerber: When Should I Hire a Professional Manager?
  • Ask Gerber: Should You Mix Business with Friendship?
  • ASK GERBER: HOW DO I ESCAPE THE ENTREPRENEURIAL SLUMP OF FEELING TRAPPED IN MY BUSINESS?
  • ASK GERBER: HOW CAN ENTREPRENEURS CREATE SHARED EXPERIENCES WITH THEIR CHILDREN?
  • Ask Gerber: How Can I Recognize Permanent Failure as an Entrepreneur?
  • Ask Gerber: How Can I Recognize and Overcome Temporary Failures?
  • ASK GERBER: HOW DO I HELP EASE EMPLOYEE STRESS DURING BUSY SEASON?
  • ASK GERBER: DO I NEED TO HIRE HR?
  • ASK GERBER : DO I NEED A CEO?
  • ASK GERBER: DO I NEED TO HIRE A COO?
  • ASK GERBER: DO I NEED TO HIRE A CMO?
  • ASK GERBER: DO I NEED TO HIRE A CFO?
  • ASK GERBER: HOW DO I KEEP PASSION AND PROFITS TOP OF MIND IN MY BUSINESS?
  • ASK GERBER: WHY DO I NEED TO INVEST IN HOSTING AN ANNUAL RETREAT FOR MY TEAM?
  • ASK GERBER: HOW CAN I ENGAGE WITH MY CLIENTS/PROSPECTS WITHOUT BREAKING THE BANK?
  • ASK GERBER: WHAT IS A CLIENT SERVICE MATRIX? PART DEUX
  • ASK GERBER: WHAT IS A CLIENT SERVICE MATRIX? PART ONE
  • ASK GERBER: THE HIRING PROCESS. WHY IS IT SO DAMN HARD?
  • ASK GERBER: WHY IT'S IMPORTANT TO KNOW AND GROW YOUR COMPANY CULTURE
  • ASK GERBER: HOW DO I ACHIEVE THE WORK/LIFE BALANCE AS A BUSY ENTREPRENEUR?
  • ASK GERBER: HOW DO I PREPARE MY FRIENDS FOR LIFE AS AN ENTREPRENEUR?
  • ASK GERBER: FIRST GENERATION ENTREPRENEURS AND BUSINESS EXECUTIVES, HOW ARE THEY DIFFERENT?
  • ASK GERBER: I PUT SO MUCH OF MYSELF INTO MY BUSINESS THAT I WORRY I AM FALLING SHORT AS A SPOUSE AND PARENT. WHAT CAN I DO?
  • ASK GERBER: ARE CHILDREN OF FIRST-GENERATION ENTREPRENEURS MORE LIKELY TO BE SPOILED?
  • ASK GERBER: WHAT'S YOUR STANCE ON REMOTE ACCESS FOR EMPLOYEES?
  • ASK GERBER: WHEN DO I NEED TO HIRE AN ADMINISTRATIVE ASSISTANT?
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